Dinner, Show and Welcome to Dealer World, Mr. Soros

The news of George Soros looking to acquire a dealership group has not only fanned the flames of dealership consolidation, but has helped nudge up already-high dealership blue sky prices.

Yet, this is much to do about nothing, really.  

Anyone who is honestly surprised to hear that a George Soros or any other billionaire is looking to invest in the dealership space in the wake of Warren Buffett’s move is not only easily startled, but also needs some added prospective.

As I’ve mentioned previously, even before the Buffett announcement, we had seen a surge in private equity and outside interest in dealership acquisitions. It was mentioned then that we expected an acceleration of that, post-Buffett. 

From an insider’s perspective (as someone who actively works with groups involved in the buying and selling of dealerships), I believe this is a circumstance of the tail wagging the dog. I’ll explain.

No doubt interest in the automotive retail space by outsiders is at a fever pitch. In these environments, there are two primary beneficiaries, dealers who are legitimately looking to exit the business and the brokers who arrange the deals.

The recent news of Soros and his potential entry into the automotive retail space came out of a broker-sponsored dinner during the National Automobile Dealers Assn. convention.

That source of information speaks more to the marketing efforts of the broker hosting the dinner than of the actual likelihood of Soros being on the verge of getting into auto retailing.

Let’s put things in perspective, other than the amount of blue sky a dealer is receiving. The second item of most concern to that dealer is keeping the deal quiet.  The need to keep deals quiet in the open market is the primary factor keeping most brokers employed. Absent of this we would be looking at MLS-type listing systems and open-forum business brokering systems like in other industries.

That being said, in the more than 20 years I have been involved in the car business, one of the best-kept automotive secrets to date has been the acquisition of the Van Tuyl group by Buffett. 

Keep in mind that while most humans share six degrees of separation from other humans on the planet, in the U.S. automotive retail space, we only have about three degrees of separation. In other words, news travels fast. Some of the best-connected and best-informed people in the industry had no inkling of the Buffett deal.

So what benefit would a dealer broker have by prancing a group like Soros in front of a group of dealers? The possible establishment that demand exceeds supply drives up values and, in turn, drives up broker commissions. 

From an insider’s view, a broker working directly with motivated buyers the likes of Soros would not have brought them out in front of group of dealers to speak of the merits of doing business with them.

It would be the broker’s job to assure the seller of the buyer’s merits, particularly one with the reputation of Soros. 

My take is that Soros and his group, like many other family funds, private equity and other outsiders are very much in an exploratory phase. They are learning the various components of the automotive retail space and considering viable opportunities. 

Just because they may be all eyes and ears is no indication they are ready and willing to sign on.

I’ve worked with several private equity groups, none of these to the level of Buffett or Soros, but make no mistake. These individuals are as smart as they come.

They may not completely understand our business today, but this shouldn’t help you sleep at night, because tomorrow is a new day and they will undoubtedly surprise. 

Anyone who sees the likes of Buffett, Soros or any other private equity fund as an “all-the-gross” deal will be in for a huge surprise.

Don’t confuse their motivation to be in the dealership sector with an abandonment of the business principles that led to them becoming billionaires in the first place.

Phil Villegas is a principal at Axiom Advisors, a boutique automotive dealership consulting firm specializing in mergers and acquisitions, enterprise management, and litigation support. He can be reached at [email protected] or 786-472-2800.