Car dealerships on the move

Never before have there been so many transactions in the car dealership market as there are right now, with Deloitte acting on over thirty transactions in this past eighteen months.

There is a range of factors driving both sellers and buyers and as such it’s essential both potential parties to a transaction understand market trends to achieve the best outcome for all involved.

From the vendors’ perspective, a significant reason why so many car dealerships are in play is due to a number of owners  nearing retirement and wish to exit the industry by realising the goodwill in their operations. Some sellers see the “car game tougher than before”, have perceived changes about the future of selling cars in this digital age, or just succumb to aggressive offers which are off the back of the availability of cheap funds with interest rates at all-time lows, and the declining value of the Australian dollar.

From a buyers perspective things are changing aswell. In the past, large listed automotive groups were the traditional acquirers. These buyers are very astute and active, but in some cases have “maxed out or are close too” the market share that can be awarded to them for particular franchises in certain PMAs. Further they tend to cherry pick the best businesses and prefer assets located in a prime location. As such we are seeing a new breed of buyer.

Large and growing family-owned private groups are creating a new second tier of buyers’ in the market. These acquirers may have been buying dealerships in adjoining PMAs or in geographies such as rural and regional areas where the public companies are less focused or have maxed out franchise limits.

The next emerging group of buyers are overseas investment houses and private equity buyers. Such buyers are known to have abundant capital but as yet are to make a large impact on our market. Some say time will tell and we expect that it is only a matter of time before a big play is made.

It is important prospective sellers understand franchise OEMs are a key partner not just while in business but also to a successful deal outcome. OEMs can have a substantial influence on a transaction, and in some cases may even have a preferred buyer(s) for a dealership. This is important to recognise when a dealership enters into a sale process. As a result, it’s essential to maintain confidentiality during the early stages of a transaction and mindfully manage relationships with OEMs.

Goodwill multiples are often speculated and debated after completion of such transactions and have often been the centre of attention. It’s prudent for buyers and sellers to recognise that a goodwill multiple is not the be all and end all and many determining factors are attributable by sophisticated buyers. We have recently seen many buyers develop their own unrealistic goodwill values with not much science and backing.

Sophisticated buyers are increasingly attracted to businesses that have

• well-trained and motivated sales staff and management team.
• well-documented business system and procedures
• sophisticated databases for CRM
• high level of service customer retention and see the opportunity to improve the business performance

The value of sound advice cannot be underestimated. It’s essential to work with advisers who have longevity in the market, to ensure buyers pay the most appropriate price for an asset, avoid some of the common pitfalls the buy-side faces and are able to develop a business case for the acquisition suitable to attract finance for the purchase.

From the seller’s perspective, advice can help them achieve the best possible price for their business. Advice is also essential to ensure the transaction take into consideration  tax and accounting implications and maximise the cashflow position for the seller .

Above all, both sides in a transaction must understand that when a buyer is interested in a dealership it’s really buying into the business’s future, but that this future is in part determined by the dealership’s previous performance.

A successful sale is all about helping sellers and buyers to successfully negotiate. Working with experts who have extensive experience navigating transactions is the best way to achieve this.

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