By Alysha Webb, Editor and Publisher
New light vehicle sales in August fell 4.2 percent compared to the same month in 2015, to 1.51 million units for a Seasonally Adjusted Annualized Rate of 16.9 million, according to Kelley Blue Book. The oft-talked about sales plateau may have arrived!
A slowdown in sales growth doesn’t necessarily mean a slowdown in dealership mergers and acquisitions activity, say industry professionals. But it may require some adjustment in thinking where pricing is concerned.
“The companies that are funded by private equity are pursuing deals like crazy now,” James Taylor, managing director at The Presidio Group, tells Automotive Buy Sell Report.
While the publicly-listed dealership groups in the first half of 2016 were doing share buy backs and selling as many dealerships as they are buying, private investors, including family offices, are very active in the market, he says.
Taylor sees the publics coming back into the buy sell market in the second half of this year, as well.
With interest rates so low, money is flowing, he says. The Presidio Group is almost at capacity in its dealership buy/sell business.
If the “plateau” is close to 17 million units a year, that is still a very healthy market, Al Haig, president at Haig Partners LLC tells Automotive Buy Sell Report. Buy sell activity will remain strong, he says, but with sales growth leveling off buyers won’t always be able to rely on growth to get their desired return on investment.
However, Haig Partners is still seeing plenty of dealerships that are performing below average. In those stores, a buyer can factor in some improvement even if the market is down, he says.
Private investors and family offices still have a lot of money to invest, he says. But a sales decline will figure into pricing, and dealership values have probably peaked, says Haig.
“I don’t think we are going to see the huge multiples for dealerships as long as we are in a flat or declining part of our cycle,” he says.
Multiples don’t even mean much in the deals he is doing, Ken Rosenfield, managing partner at accounting firm Rosenfield & Co. tells Automotive Buy Sell Report.
The term multiples didn’t even come up in his recent deals, he says. Instead, his clients are looking at when they can get a payback, and what their return on investment will be.
There are plenty of ways to get a good return even if sales are slowing, says Rosenfield, including fixed operations and used car sales.
Plus, not all dealerships are making big money, says Rosenfield. He is doing deals involving smaller dealerships that are off the radar of the big buyers, and are struggling, he says.
“That will keep deals going, but they aren’t going to pay crazy money” for the dealerships, says Rosenfield.
The main impact slowing sales will have on the buy sell market is the need to manage pricing expectations, says Stephen Dietrich, an attorney in law firm Greenberg Traurig LLC’s Denver office.
In a market where sales are continually rising, that is factored into the pricing equations, he says. Now, however, buyers are hearing a lot about a market slowdown and will consider that when deciding how much to pay for a dealership.
“A well-run dealership is still worth a decent amount of money,” says Dietrich. “But your expectations have to be reset.”
