By Stephen Dietrich, Greenberg Traurig LLP
In looking at the current buy/sell environment it is curious to me that I continue to hear that activity has slowed or that deals are not getting done. I say this because from what I am seeing, and in talking with various lenders and other participants, deals are getting done and people are looking to buy. What I do agree with is that the type of deal and buyer are different than what was occurring 12-15 months ago.
A year and a half ago there were large deals on the horizon and large scale consolidation was in the air. Several of those deals did get done and I believe there are a few brewing out there at any given time. Those types of transactions take time and while they are interesting and certainly exciting, those are not the majority of transactions.
At any given time there are smaller and strategic transactions taking place. These are one dealer in a market buying another dealer’s store to expand in a known market or growing into a nearby market. Transactions of this sort are occurring all the time and are really the driver of a lot of buy/sell activity.
What I have started to see more in the past 6 months or so is a bit of a different buyer than a current dealer looking to expand. I am seeing new entrants to the retail dealer ownership space that are not looking at the monster deal or to suddenly be a top 25 dealer.
There is a steady stream of new individuals or small groups looking to buy one store to get started or maybe a few stores if the opportunity is correct. Often this new entrant is looking geographically for some reason, meaning they are not looking just for any deal, they are looking for deals in specific locations.
The reasons may be family-oriented, meaning the buyer has family in a market or wants to move to that market and wants to have a business where they are moving. The buyer may be looking in her or his current hometown where there is a non-auto related business and the person is looking to diversify or expand business interests.
These buyers are creating a bit of competition for smaller buy/sell opportunities so the price on the dealerships in question is not being driven down as dramatically as one would expect with current operating conditions. This is not to say that pricing is not being affected by current conditions, but in some markets where there is a unique buyer looking to enter, the prices may stabilize a bit.
What I have also seen is that with the smaller strategic or opportunistic buyer who is working to enter the industry, some sellers are almost more willing to talk with the new buyer than a dealer in the same market or a larger group trying to enter the market.
Sellers appear to be more willing to talk with these new smaller buyers because these buyers are taking the time to connect with the sellers and form an emotional connection. This creates an ongoing conversation, and ultimately contributes to deals being struck.
I am not saying this is a phenomenon that will remain or grow to be an acquisition strategy. This is more of an observation on deal dynamics at this time in the retail auto industry. I suspect it may be a bit fleeting as the number of individuals who fit this criteria –namely individuals wealthy enough to purchase dealerships, availability of deals with solid operations and leadership that are available for sale — is likely finite.
What does seem to be a takeaway is that there is value in a buyer and seller working to make a connection with each other because that connection can be integral to getting a deal done. That concept is not new, but it is perhaps so basic as to have been forgotten by many who work on deals in this or any industry. This unique dynamic that I have observed has reminded me of the importance because it appears to be a key factor in outsiders being able to engage sellers and get deals done.
Stephen Dietrich is a partner in the Greenberg Traurig LLP law firm’s Denver office. He can be reached at 1-303-572-6502 or DietrichS@gtlaw.com.
