The market for dealership mergers and acquisitions is in the strongest shape it has been in more than a year, indicating that buyers are looking beyond the industry’s shortterm challenges, experts said.
Dealership valuations have returned to levels not seen since before the start of the COVID-19 pandemic, said Mike Lewicki, president of Lewicki Automotive Consulting.
“The supply of attractive dealerships in attractive locations is very finite, so when one becomes available, it’s in certain cases a once-in-a-lifetime opportunity to acquire it,” Lewicki said. “And you don’t acquire these things for five years. You acquire them for 25 years.”
Goodwill prices at new-vehicle stores in larger markets are up 30 to 40 per cent from near the start of the pandemic in 2020, Lewicki said. Goodwill is the value of intangible assets such as a dealership’s reputation, measured by calculating how much the purchase price of a company exceeds the fair market value of its net assets.
Canada’s brokers have been busier than they were at the beginning of last year, just before the pandemic brought the economy to a near standstill.
Samir Akhavan, managing partner at Templeton Marsh, said his company is on track to close on deals involving 50 dealership locations this year, a record for the firm.
He said in late June that his firm has “already had a better year than any other year in our 11-year history,” he said. “And if everything we have on the works gets done, 2021 will be better than [the last six years] put together.”
That despite the ongoing pandemic, rising inflation and a microchip shortage that has depleted Canadian dealers’ new-vehicle inventory levels. Akhavan said retailers are acting with foresight and continuing to make deals, despite the current business climate.
“I don’t believe any of that is an impediment to doing business. And I don’t think there’s anything down the road that would be a significant impediment to our business.”
‘CONSTANTLY PICKING UP’
Large urban markets such as Toronto, Montreal, Vancouver, Calgary and Edmonton are particularly hot right now, according to Lewicki.
Transactions that were delayed in the early days of the pandemic are now being completed, Lewicki said. “Volumes are constantly picking up across the country,” he said. “Dealerships with wellthought-out marketing presentations should fetch top dollar once again.”
Akhavan said midsize markets are also of particular interest to dealers because of land prices.
“Real estate in [large] markets has become so expensive that dealers are saying, ‘Do I really want to pay $37 million for a piece of property for a dealership in the [Greater Toronto area]? In Kitchener, Ont., that would buy me four stores, so why don’t I talk to a four-store dealer group and maybe pay them a premium and acquire that platform?’”
Akhavan said sellers are often motivated by current valuations, which are high. He said many dealers, after more than a year of COVID19 that was preceded by a long stretch of strong new-vehicle sales, do not want to wait to see if their stores might fetch a higher value in a few years.
“They’re thinking, ‘I might get more for my store now than I might three years from now, or at least I know what I can get for my store today. I don’t know what I can get for it five years from now. I’m 67, so I’ll sell.’”
Cross-border transactions have also continued, despite pandemic border restrictions. In May, Calgary’s Foundation Automotive Corp. purchased a Colorado Hyundai dealership — its first — from AutoNation Inc., the largest new-vehicle retailer in the United States. Foundation Automotive has said it plans to buy more than a dozen U.S. dealerships this year.
That deal came just days after Ontario-based Rafih Auto Group purchased a four-store dealership group in southeastern Michigan, expanding its presence in the United States about two years after buying stores in Ohio. That same month, Quebecbased HGregoire purchased two Nissan dealerships in California, adding to its collection of U.S. stores.