March 31, 2016 — From January 2013 to December 2015, the six public dealer groups acquired 149 new car dealership rooftops, including 24 stores in Brazil, Spain and the United Kingdom, adding an approximate $8.7 billion in revenue over the three years. The acquisitions comprise 15% of the 1,002 total buy-sells tracked by The Banks Report the last three years.
The six groups spent a combined $3.5 billion on their acquisitions over the three year period. The average spent per store jumped from $16.1 million in 2013 to $25 million in 2014, and then dropped to $20.3 million last year. (These numbers include the heavy truck dealerships Penske Automotive Group acquired in 2014 and 2015).
The pace of dealerships acquired by the public dealer groups has been fairly consistent each year with 56 in 2013, 56 in 2014 and 37 in 2015. (Last year’s total does not include AutoNation’s acquisition of the 12-store Allen Samuels group in Texas, which closed in February of this year. The acquisition was announced in the fall of 2015 and would have brought last year’s total to 49 had it closed by the end of the year. It should add approximately $950 million in revenue for AutoNation).
The Banks Report data shows 479 rooftops changed hands in 2015. (NOTE: The Banks Report’s data does not include every acquisition that occurred — there are deals that never are reported for various reasons. However, the data is the industry’s most comprehensive dating back to 2013).
To download Excel files of acquisitions from the previous three years, click on the links below:
OUTLOOK FOR 2016 — HOT START, BUT LIKELY WON’T CONTINUE
Buy-sell numbers in the first quarter seem to indicate a brisk 2016. (The Banks Report currently is compiling data from the first quarter).
Through the end of March, the public groups have already closed on 26 dealerships this year:
- Group 1 Automotive started the year acquiring the 12-dealership Spire Group in the U.K. The purchase of Spire gives Group 1 Automotive 29 dealerships in the U.K. which should generate approximately $1.8 billion in annual revenue. Spire’s 12 dealerships include four Audi stores, three BMW/MINI dealerships along with an after-sales center; two Seat stores; one each of Jaguar, Skoda and a Volkswagen commercial vehicle dealership.
- Lithia Motors’ subsidiary DCH Automotive acquired Group 1’s Ira Toyota Scion dealership in Milford, MA. DCH also picked up Riverside Subaru in Riverside, CA.
- AutoNation, as already mentioned, completed the acquisition of 12 dealerships of the Allen Samuels Group in Texas.
However, despite the early numbers this year, It’s likely the pace of acquisitions from the public groups will slow the rest of 2016. (We are hearing of a couple of deals that that have been in negotiations for a while, though. If they close, the first half of the year will look strong, but don’t use that as a barometer for the rest of the year).
In January, each of the public dealer groups watched their share prices fall to 52-week lows plunging nearly 30%, driven down by an overall stock market decline; concerns about the Chinese stock market; and indications that sizzling auto sales may be slowing.The share prices have begun to rebound, but still are far off their 52-week highs. Because the stock price decline was so severe in January, it likely will slow the pace of acquisitions over the next few months — at least for the public dealer groups.
Executives with five of the six public groups mentioned during their most recent earnings calls that their investment focus would shift from acquisitions to buying back company shares.
Lithia Motors is the one group that may continue a moderately aggressive acquisition strategy. “We remain confident that we will find accretive purchases in the near-term to increase our portfolio, and continue to expand our footprint,” CEO Bryan DeBoer said in the fourth quarter earnings call last month.
EFFECT ON VALUATIONS
Despite the projected pull back by public dealer groups, buy-sell activity on the private side should stay strong, which should keep valuations at a high level for the next several months.
According to two recent reports, The Blue Sky Report published by Kerrigan Advisors, and The Haig Report published by Haig Partners, dealership valuations reached record levels last year as vehicle sales continued at a record-breaking pace.
(NOTE: Both reports provide excellent financial analysis regarding dealership blue-sky multiples and come at the discussion from different angles. But buyers and sellers should understand each deal is its own book with numerous factors dictating the valuation. The published multiples should be used as guides and not hard numbers to negotiate from.)
The multiples being paid for dealerships today are likely at their peak, and probably will not continue to increase, Kerrigan’s report says. However, they should continue at their current level due to several new and sizable investors that entered the market in 2015 — either investing with current owners or buying groups outright. In many cases, privately-held groups have been able to outbid public deal groups on high profile deals.
(One intriguing dynamic emerged in 2015 — the willingness of OEMs to exercise the right of first refusal against the public groups. The Banks Report knows of at least three deals in which OEMs blocked public dealer groups from completing for various reasons. It doesn’t happen enough to call it a trend, but sellers should be aware that merely being a public group does not necessarily mean favored status from the OEMs.)
- Berkshire Hathaway acquired 82 dealerships (including the 79-store Van Tuyl Group in March).
- McLarty Automotive partnered with Soros Fund Management and the investment arms of the LaFrance and J.B. Hunt families to acquire 12 stores in the Arkansas and Missouri markets.
- Fremont Holdings (the family office of the Bechtel Group) acquired the 11-store Morrie’s Automotive Group in Minnesota.
- ZT Wealth, a group of investors led by Taseer Badar, acquired four dealerships in Fort Walton Beach, FL.
- RFJ Partners, led by Rick Ford and backed by private equity group the Jordan Company, continued its buying spree started in 2014. The group picked up the Dave Smith Automotive Group in Kellogg, ID, one of the best selling groups in the country.
The new players listed above likely will continue buying stores and are not afraid of pulling the trigger on large deals that make sense. They are well-capitalized with proven management teams and appear to have excellent relationships with OEMs. According to The Haig Report, the pull back by the public dealer groups on acquisitions should present intriguing opportunities for private buyers this year.
Meanwhile, several large dealer groups made sizable acquisitions in 2015 without the aid of new investors. And that trend should continue this year also. (The Banks Report knows of one large deal that has been signed in the last few weeks that will put an east coast group together with a group on the west coast creating somewhat of a national footprint.)
The groups listed below all made large acquisitions in 2015 and likely will continue to be buyers this year.
- AMSI acquired several stores in the second half of the year.
- The Napleton Group continues to add stores at a fast pace.
- Joe Serra added several franchises with an acquisition in Northern Michigan last year.
- The Island Automotive Group acquired the Manfredi group in Long Island.
- New Country acquired five dealerships from Euro MotorCars.
- Priority Automotive Group continues to add to its empire on the East Coast.
- Kunes Country Automotive picked up four dealerships in Illinois.
- Holman Automotive Group added a BMW/MINI store along with an Audi store in the New Jersey and Pennsylvania last year.
January and February vehicle sales both came in strong, indicating 2016 could be another record year and seemed to allay fears of a slow down or plateauing of sales. March numbers will be telling as different research firms are predicting vastly different outcomes. If the industry does experience a slowdown in March and April, dealership valuations may start to recede a bit going into the second half of the year.
Both The Haig Report and Kerrigan’s Blue Sky Report predict valuations for luxury brands will come under pressure this year as margins have been squeezed in recent months due to high inventories coupled with pressure to move those vehicles. In short, luxury brands likely have hit the ceiling of what they can command on the multiple front. It might become harder to get some of those acquisitions across the finish line (although, we’ll still see luxury brands be acquired this year).
Audi, BMW and Mercedes Benz are the three brands under the most pressure, at the moment. Lexus appears to be gaining in strength and finished 2015 as the top luxury brand when counting actual registrations.
Meanwhile, low gas prices have helped make brands heavy with truck and SUV inventories more valuable.
Of course, Volkswagen stores have taken a hit due to the emissions scandal that still appears to far away from a solution. Although, Volkswagen had planned to open nearly 100 new dealerships, look for several to close the rest of the year.
Nissan continues its cluster strategy (first reported by The Banks Report in 2013) and partnering with preferred dealers, including two groups from Mexico and one from Argentina, which acquired three stores in the Northeast in the last year and a half. But dealers are pushing back against Nissan claiming its investments in certain dealers violate state franchise laws.
Subaru continues its torrid sales pace making the franchise significantly more valuable over the last several months. It’s a great brand making all the right moves, but buyers should understand sales are restricted by production constraints (which should ease in 2018 when the brand takes over 100% of the plant in Indiana.
FRANCHISE OWNED BY PUBLIC DEALER GROUPS
The two charts below list the number of franchises by brand owned by public dealer groups at the end of 2015.
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