November Dealership Buy-Sell Update (Revised)

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December 6, 2014 — UPDATED — Is Volvo worth a second look? The growing role of private equity; How long will the high multiples continue? Record setting year for number of acquisitions as the industry zeroes in on 300. Number of acquisitions by brand. Also, Van Tuyl sells a dealership; Sonic’s pending deals & the top selling Cadillac dealership is sold. 

We have revised our numbers due to several acquisitions from earlier this year that we confirmed earlier this week. The deals include 11 acquisitions by RFJ Auto Partners, led by industry veteran Rick Ford and backed by Chicago-based private equity firm Jordan  Company; three Michigan stores acquired by the Ken Garff Group — including the country’s top selling Cadillac dealership — and four John Eagle ultra premium brands bought by Steve Late in Austin, TX.

The pace of dealership acquisitions cooled in November but several pending buy-sells should close in December and will push the industry over the 300 deal mark for 2014.

Meanwhile, January will provide a hot start to 2015 when the Berkshire Hathaway deal for the Van Tuyl Group closes (possibly early January). Van Tuyl has been somewhat busy adding two points and selling one since the announcement in early October that Warren Buffett is acquiring the group (Now has 79 dealerships).

The group added two new points — Surprise Ford in Surprise, AZ and Crest Nissan in Texas. It also sold Van Chevrolet in Carrollton, TX to Sam Pack.It is Pack’s first foray with the Chevrolet brand.

 Click TBR_Nov14_Buy_Sell_Excel to download an Excel file of the 2014 dealership buy-sells through November. 

Through November, The Banks Report has tracked 295 dealership buy-sells — far above the 202 total of 2013. Most brokersTBR_Volvo_Future_Nov14we’ve talked to believe this is a record year for both the amount of money spent on acquisitions and the number of rooftops that have changed hands.

November saw only 16 deals completed, but The Banks Report knows of at least eight (see below — Pending December Deals) that are pending that should close sometime this month. December typically is a hot month for acquisitions. Each of the previous two Decembers have seen a flurry of deals announced. The industry can expect the same this December.

Last month, The Suburban Collection added to its empire acquiring the Ed Schmid Ford store in Ferndale, MI, giving it seven acquisitions since January 2013.

Rick Niello added to his San Francisco-area luxury group buying Turner Volvo from Pat Turner. (Volvo could be a sleeper brand — see sidebar to the right.)

Manny Kadre finally closed on the purchase Globe Motor Cars — the Mercedes Benz store in New Jersey that was a Right of First Refusal deal that we wrote about here.

In Colorado, the Larry Miller H. Automotive Group purchased Lakewood Ford Land from Robert Liedel — its tenth acquisition since January 2013 tying Kendall Automotive for the most buys among privately owned groups (It purchased several dealerships from Doug Moreland in Arizona in early 2013 in one acquisition). Rumor out of Colorado has the blue sky at an astounding $40 million+ for the Lakewood Ford store.

In October, the Ken Garff Group closed on three dealerships owned by Dan Frost in Southeastern Michigan — including Cadillac of Novi, which through October was the top selling Cadillac dealership in the country with just 1,870 sales, more than than 700 than its nearest competitor.

Brands

Fueled in part by six Chrysler Dodge Jeep Ram acquisitions by RFJ Auto Partners, the four brands lead in buy/sell activity with 32 for the year, regaining the top spot they had in 2013. Ford is second with 29. Of the luxury brands, Mercedes Benz leads with 11, while Nissan leads all Japanese brands with 26.

Nov14_Brand_DataPending December Deals

Sonic Automotive is rumored to be acquiring two stores and selling one — all in the Colorado market. It’s reportedly buying one luxury store while trading a high-end domestic franchise for a store with more real estate.

Meanwhile, Dennis Elmer’s East Coast-based Priority Automotive Group should close on Freedom Ford and Freedom Volvo in Virginia Beach this month. Both stores are owned U.S. Rep. Scott Rigell (R-2nd District). Priority will have 17 new car dealerships once the deals are completed.

Tupelo Auto Sales, owned by Hoyt Sheffield, is slated to be sold to the Carlock Automotive Group and be renamed Carlock Chrysler Dodge Jeep Ram. Another Tupelo dealership was sold this month — Bill Parks sold the Chevrolet Buick GMC store that his family had owned for 95 years to Joe Marshall, who owns a Hyundai and Mazda dealership in the area.

Group 1 Automotive got December off to a hot start buying three BMW/MINI stores in the United Kingdom — Elms Bedford BMW/MINI, Elms Cambridge BMW/MINI and Elms Stansted BMW/MINI. The deals are expected to generate $225 million in annual revenues.

Group 1’s UK operations are expected to generate approximately $1.3 billion in estimated annual revenues with the addition of these stores. It now has 17 dealerships in the U.K. representing BMW/MINI, Audi and Ford.

Pending Deals First Quarter 2015

Along with Buffett’s acquisition of Van Tuyl, The Banks Report knows of several other deals that should close early in 2015 — including deals in Georgia and Texas. Dayton and Columbus, OH newspapers reported in October that Joe Hidy is selling his four stores — two to Steve Germain (Ford and Honda) and two (Acura and Hyundai) stores to the Superior Automotive Group. The deals likely will close sometime in late January or early February.

In the “duh” category, we predict that the soon to be-newly formed Berkshire Hathaway Automotive Group will announce at least another two large deals in 2015.

Initial Forecast for 2015

Now is a good time to be a seller. Multiples are high — an average of 4.4x across all franchises at the end of the third quarter according to Haig Partners’ Blue Sky Report published this week. The report also says the average dealership’s blue sky value is about $4.25 million.

Multiples can be a mythical number, though. Each deal is its own book and sellers focusing on a multiple often leave money on the table. Still, prices for dealerships are at a point where selling is an attractive option for many dealers that are in that older Baby Boomer category.

Vehicle sales are nearing all time highs. This year and next year may go down as two of the best years in automotive retail history with car sales. Analysts are predicting sales will hit 17 million in 2015 and perhaps again in 2016.

It’s a sellers’ market and buyers seem willing to pay. The hot sales, optimistic projections and people like Buffett coming into the space are attracting numerous outside buyers.  Buffett’s entrance into the business has created a buzz in the investment community the last two months — and as a result, brokers and dealers report fielding more calls than ever from possible investors. Factor in existing dealer groups looking to add to their portfolios, there is no shortage of people interested in acquiring stores.

But even before Buffett’s announcement, several other notable outside investors had already put together representation to assist them with acquiring dealerships.

We wrote about it first and other media publications have followed, but the potential entrance of Family Offices into the industry could be a bigger game changer than even Buffett. It will be interesting to see how receptive manufacturers will be in working with these types of investors. Over the next three years, the ownership demographic will look vastly different than it does today.

Private Equity Investors

RFJ_Auto_Nov14_UpdateWhat hasn’t been well-reported yet, is the growing number of private equity investors that already have ownership in dealerships. One example is GPB Capital out of New York. Industry veterans Patrick DiBre, Jeff Nash and Scott Naugle are with the private equity group. DiBre has put together several deals in recent years including buying stores in Virginia, New Jersey, New York and California including seven Nissan dealerships. He also acquired two Group 1 stores this year — Hassel Volvo (now Glen Cove Volvo in Long Island) and Honda of Freehold, NJ.

Another private equity firm quietly buying stores is the Jordan Company based in Chicago. The firm manages over $8 billion in original capital investments in various sectors. It was founded in 1982 by John “Jay” Jordan and David Zalaznick.

Earlier this year, it partnered with Rick Ford and formed RFJ Auto Partners, headquartered in Dallas, TX. Ford was a former vice president with the Sonic Automotive Group and most recently was the COO for Randall Reed’s World Class Automotive Group.

Within the last 11 months, RFJ has acquired at least 11 dealerships in tier two markets in Texas and Alabama.

Whether this development means manufacturers are more open to having dealers backed by private equity remains to be seen. At least two senior executives from the manufacturing side privately admitted to us privately that the industry is changing and they have to recognize the value that private equity brings.

At the very least, Chrysler and Nissan appear willing — perhaps eager — to open their retail networks to private equity.

Meanwhile, dealer groups in that five to 15 store range are aggressively buying stores. According to our data, the 10 private dealer groups with the most acquisitions since January 2013 have accounted for 74 deals. The public dealer groups have acquired 123 stores in that same period.

Another factor is the availability of funds. Lenders reportedly are willing to finance significant deals, and appear willing to go deep, according to Haig Partners’ report. However, despite lenders’ willingness to finance greater portions of acquisitions, they aren’t acting irrationally. The Banks Report knows of at least two deals that recently were scuttled because banks backed off on financing them.

The question is, how long will the high multiples continue. Erin Kerrigan of Kerrigan Advisors, also publishes a quarterly blue sky report, believes the window is short. Already, some of the public groups are pulling back.

Group 1’s CEO Earl Hesterberg indicated during the company’s third quarter earnings call that prices appeared to be high for several deals and would not work for an investment at that level.

Meanwhile, AutoNation Chairman and CEO Mike Jackson said the group would pass on deals they deemed too high.

We believe the window will be open into the second quarter of 2015 and possibly beyond. The buzz from Buffett’s announcement will die down — probably after the New York Auto Show in March-April. The National Automobile Dealers Assn. convention is in late January, and then the New York Auto Show with corresponding dealer events such as the DrivingSales’ President’s Club conference and the J.D. Power/NADA Automotive Retail Summit, will keep the buzz going.

That buzz has created an artificial bump of  potential sellers, we believe. Some of the buyer interest will die down as interested outside investors begin to lose interest once they realize the level of involvement manufacturers have in the buy-sell process.

Interest rates likely will rise — probably in the second half of the year, making financing a little more difficult than it is today.

A downturn in multiples might create even more of a buying frenzy, however, than what we’re seeing today. We know of several groups that are waiting for the current frenzy to slow down before jumping into the market.

The industry will continue to be in this era of consolidation for the next couple of years. And it’s changing the retail market — creating larger and more powerful regional groups; other regional groups are going national, and it’s driving a more professional atmosphere at the retail level — for both the employee and the customer.

 

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Cliff Banks

 

About The Banks Report:

Designed for top automotive executives, dealers, industry analysts and investors who want to cut through the noise and get an accurate picture of what’s going on in the Automotive Retail space, the Banks Report is an online source that provides subscribers with daily insight into the top news stories of the day.

The Banks Report was created by Cliff Banks, an award-winning journalist with more than 20 years in the automotive retail space. As an editor of two automotive-related media companies, he built a vast network of sources ranging from CEOs to service technicians at the dealership. There’s no one better at connecting the dots and putting the news into perspective.