By Alysha Webb, Editor and Publisher
Is the current dealership buy-sell market “frothy”? Not really, experts on a panel at the Automotive News Retail Forum in Las Vegas say. There is a lot of money in the market, however. That has made it a good time to sell, especially for large groups, they say.
“The landscape has changed,” says Mark Johnson, president of MD Johnson, Inc. “It has become a better deal for dealers. Now the buyer pool includes many bigger check writers.”
Rather than frothy, Tim York, managing partner of DHG Dealerships prefers “healthy.” The market may be too expensive right now for some buyers, such as the publicly-owned dealership group, he says.
“But for many others, there are opportunities to buy, and many are taking them up on it. [The market] may not quite be to the level of a year or two ago, but it is certainly healthy,” says York.
Al Haig, president of Haig Partners LLC, says the prices for premium luxury franchises are “unique in our business,” and that the mid-line brands are trading at a slight premium. “But I wouldn’t call it frothy at all,” he says.
But, he adds, “I think there is a downside risk on premium luxury [compared to] the prices of other franchises since there is such a big gap.”
Private equity and family offices are providing much of the new capital. The Berkshire Hathaway acquisition of the Van Tuyl Group last year put dealerships on the radar screen for those investors, and validated the industry as a good place to put funds.
Private equity investors tend to have a five to seven-year investment horizon. Then they want to exit, preferably with a healthy profit. Family offices generally invest for the long term.
That makes family offices more attractive as dealership investors, say the panelists.
“We welcome family offices,” says Haig. “That source of capital is going to rival other buyers in the industry.”
Both private equity and family office investors lack experience running auto dealerships, however. That had made for a “pretty severe” learning curve in some deals he has worked on, says Johnson.
The manufacturers are also having to learn to work with these new investors, and their reaction has been “mixed,” says York. Working with the manufacturers on a deal involving this new breed of investors can be “challenging,” he says.
The amount of money pouring into the market from those new investors has caused some sellers to have unrealistic valuation hopes. Johnson says he is seeing a lot of mispricing. “Sellers’ expectations and true reality diverge,” he says.
Todd Berko of Bel Air Partner LLC says the Berkshire Hathaway deal created expectations among some they would be able to sell for 20 percent more than a dealership is worth. “But they are not,” he says.
Still, the market is ripe for another mega deal, say the experts.
Says Haig: “There has really never been a better time for large dealership groups to exit. There is lots of excess cash.”
As for what franchises to go shopping for, luxury topped the list.
Also, “Ford is a great volume brand,” says York.
But what brand is hot can vary, depending on the market, adds Berko.
