By Alysha Webb, Editor and Publisher
Non-traditional investors are becoming bigger players in the dealership buy sell world. The most obvious example is, of course, the recent acquisition of Van Tuyl by Berkshire Hathaway.
Family offices – companies that invest resources for a single family – are also investing in dealerships. Dobbs Management Services LLC, the family office of the John Hull Dobbs family of Memphis, Tenn., sold its first dealership group to AutoNation. The family is in the vehicle distribution business again, however.
In early September, Dobbs Management Services acquired GWP Holdings LLC, the parent company of heavy-duty truck dealership operator Western Peterbilt and Western Truck Parts and Equipment Co. GWP operates 17 heavy-duty truck dealerships in the Pacific Northwest, from Alaska to Northern California.
GWP represents Peterbilt, Volvo, Mack Trucks, Autocar, Crane, and Hinobrands. Edward Dobbs will serve as chairman of GWP and Frank Anglin will remain as the CEO of the company. The balance of the management team at GWP was retained as well.
Edward Dobbs, president, and Chris Crosby, vice president of Dobbs Management Services talked to Automotive Buy Sell Report about its prior exit from the car dealership business, the attractive multiples in the heavy-duty sector, and how the heavy-duty truck dealership business is good fit with a family office investment philosophy. This is an edited version of that conversation.
ABSR: Why did you decide to get into the heavy-duty truck distribution business?
Edward Dobbs: With the truck business, we feel like we found a niche where we know the business model. We have been looking at the heavy-duty sector for five or six years. We have explored acquiring a number of other heavy-duty dealership groups in the past but those didn’t come to fruition
We think the heavy duty market is a very stable business over the long-term. We recognize that we will experience some economic ups and downs over time, however, trucks are going to continue to be a principal mode of transportation and critical to the economy.
Compared with the automotive distribution business, there are two things we find to be different and which contribute towards our view that the heavy-duty business is more attractive as an investment: 1) Rather than compete against other dealers in the same geographic market as you do in the automotive business, the heavy-duty dealerships are awarded exclusive Areas of Responsibility; and 2) The valuations in the automotive business have historically been much higher than in the heavy-duty dealership world and are unreasonable from our perspective.
ABSR: What were the multiples on the GWP acquisition?
Edward Dobbs: We cannot comment on the specifics of our deal valuation-wise but we believe returns in the very high teens or low twenty percent range are very achievable even with modest growth.
We believe that there is a role for long-term investors in this market. The OEMs are looking for dealer partners who have a long-term commitment to their brand, consistency in the markets and high-quality execution in the sales and service areas. With the traditional private equity model of buying and selling businesses over a three to seven year period, that is difficult to achieve.
Chris Crosby: Dobbs Family Management is strictly a family office. We are private but we are not a private equity firm. The principals are between 40 and 50 years old. We have a long-term view of 15 to 20 years and generally do not go into an investment with a pre-determined exit strategy. We go into the investment with the working assumption we would be comfortable owning and growing the business over an extended timeframe. Our hold period is not necessarily forever but it is indefinite.
While we are new in the heavy-duty dealership industry, we understand dealership economics and what is critical to success. In general, we tend to be more business-to-business oriented and have a comfort in that area. In particular, two of our companies run decent-sized heavy-duty trucking fleets so we understand what customers are looking for in a dealer.
Beyond the brand itself, what differentiates the most successful dealers from the rest centralizes around great customer service. The key to great service is, of course, the quality and capabilities of the management team and other employees.
ABSR: Why did you get out of the dealership business initially?
Edward Dobbs: My father and uncle, who started the dealership business and were running it, were looking for an exit when AutoNation started buying up dealerships and paying pretty high multiples. They got a multiple they couldn’t have gotten from a private buyer.
ABSR: How do you plan to grow your new heavy-duty truck business?
Chris Crosby: First and foremost we think there are organic growth opportunities. Also we think we are relatively early in a recovery cycle of heavy-duty. We think over a 20-year time frame. The family has the capital [and] we would seek to expand if the opportunity was there.
Edward Dobbs: We bring a level of personal interest — we are investing our own money here. We want to be more involved in the operations of the business and strive to see we do well in a service perspective as well as doing well for our manufacturer.
Chris Crosby: In acquiring GWP, it was not just getting a position in the heavy-duty industry, it was very deliberate in making sure we were aligned with the best OEMs and also had the right platform from which to grow.
We have to have been very familiar with [the heavy-duty truck dealership] industry. You have a lot of players out there that are either at or approaching retirement age and don’t have a succession plan. There are not a lot of ready-made buyers who want to be in the heavy-duty truck dealership business.
Car dealers have conceded that dealership groups are going to own multiple brands [but] the OEMs in the heavy-duty tucking business are much more intent about their focus on their brand in a particular market.
The manufacturers want longevity in their dealers, and consistency in how they engage the customer. Dobbs Family Management has that. The shortest we have held a company was 13 years. We have owned a company as long as 70 years.
Go to www.dobbsmanagement.com for more information.