If you’re like me, you use the WardsAuto Megadealer 100 to gauge which dealer groups are in a growth mode and which aren’t.
In facilitating the buying and selling of dealerships, my firm, Axiom Advisors, takes a due-diligence approach that it’s not always what you see on the books that will get you, it’s what you don’t see that can ultimately sneak up on you.
In 2013, we saw fewer dealership transactions than we had anticipated at the beginning of last year. Given the stable 2011 and increased sales in 2012, we thought more buyers would re-enter the market in 2013.
However, because 2013 got off to such a great start, many would-be sellers decided to let it ride an additional year. This theory appears to hold true, given the uptick in offerings we’ve already seen in 2014.
While last year was marked by several single-point transactions, 2013 was a year defined by the consolidation of multi-point dealership groups by mega-privates. There was activity from the publics, but it didn’t seem to keep pace with that of the mega-privates.
Much like publicly held dealership groups, the mega-privates essentially had to sit on the acquisition sideline in recent years due to limits on viable opportunities. Then, 2013 presented a year where many of these groups were ripe with cash and had bankers knocking on their doors with offers to help to fuel their expansion. These circumstances aligned perfectly for many mature groups that had postponed exiting the market since the start of the economic downturn in 2008.
Unlike single-point or small dealer groups, some of last year’s sales were by large, more mature groups that recognized the upside of trying to stretch out an additional year based on increased profitability ultimately could be compromised by a diminished multiple if too many deals hit the market simultaneously.