On today’s show, we’re pleased to welcome back 20-year automotive industry veteran Dave Cantin, CEO of Dave Cantin Group.
Jim Fitzpatrick: Hello, everyone. Thanks so much for joining me on another edition of CBT News today. We’re so happy to be joined by Mr. Dave Cantin. He is the CEO of Dave Cantin Group. These guys are experts in buy/sell and all things automotive. Right, Dave?
Dave Cantin: Good morning. Thank you very much. How are you today?
Jim Fitzpatrick: Doing great. Doing great. So inquiring minds want to know out there in the automotive sector, you’ve had some big ripples in the buy/sell market happening. Big splashes, I should say, with Asbury’s acquisition of Park Place. Talk to us a little bit about that before we get started on some of these other questions.
Dave Cantin: Let’s just start off by saying, wow, what an incredible acquisition. Asbury and their leadership executive team did a fantastic job, obviously, of getting that deal to the finish line.
Dave Cantin: I mean, what an incredible acquisition. What a way to end 2018. What a way to make such an incredible statement to the automotive industry. There is absolutely no fear in Asbury’s eyes. Great job to them.
Jim Fitzpatrick: For other auto groups that are witnessing this buy/sell go down, or I guess it’s going to actually go down in the first quarter of 2020, which is just weeks away right now, is it safe to say that if I’m doing $10 million a year in my business, it’s worth 10 times that today, and it’s worth $100 million?
Dave Cantin: Well, there’s so many different parameters that go into an evaluation, and we speak about this all the time, right? It’s so much more than just what you’re making. It’s really the executive team behind the current acquisition. It’s the location of the acquisition. Is the acquisition meeting its compliancy with the manufacturers as far as image requirements? Performance metrics that go into an acquisition. We speak about that all the time. Asbury is in the process of closing on an acquisition that is just an incredible fit for their current portfolio, and it’s great. It’s really an incredible acquisition.
Jim Fitzpatrick: Do you think we’ll see any more between now and the end of the year, these next two weeks of 2019, of other publics jumping up and saying, “Hey, we too stepped up and bought some groups?”
Dave Cantin: It wouldn’t surprise me at this point. I know there’s a lot of acquisitions working behind the scenes right now, some pretty large platform acquisitions out there working a succession planning, first time ever offered for sale. And it wouldn’t surprise me to hear something pre year-end, or possibly right after the new year.
Jim Fitzpatrick: Typically, Dave, do you find that the team inside of these dealerships, does it make the money easy? Will they have a nervous Christmas going, “So am I in? Am I out? I’m a GM, or a GSM, or a new car manager, or a used car manager, and I’ve been here five years. Should I be nervous because a publicly-traded company has now acquired my dealer group?”
Dave Cantin: That’s a great question. When we think about an acquisition like this, that’s taking place right now, Asbury’s really smart. When someone’s about to invest $1 billion in an acquisition, you know they’ve thought of all of these things. I’m extremely confident that Asbury made everyone within his acquisition feel pretty comfortable and confident that they have a secure position. Look, let’s face it, a business is run by a lot more than just a product. It’s the people as well. So I’m confident that these people have helped add the value that it took for Asbury to pay the price that they have.
Jim Fitzpatrick: When we hear about a deal that goes down for $1 billion cash, that’s not necessarily to say that Asbury went to their bank account and took out a check for $1 billion, and they’re about to say, “Here it goes.” It could be a financed deal. It just means really that the seller is going to receive $1 billion cash, right?
Dave Cantin: Absolutely. When you hear a cash closing, it means that there is no financing that has been taken place between the buyer and seller. At the closing table, the seller will be paid in full.
Jim Fitzpatrick: It’s also, I think, to say that that there’s some financial institutions out there that are also bullish on the auto industry, because if Asbury had to go to their bankers and say, “Hey, we’re buying this group. We’re going to need a couple of hundred million from you. A couple hundred million from you. We’ll kick in some of our own.” You’ve got some bankers out there that are saying, “Yeah, it’s going to be a good year in 202. Let’s do this deal.”
Dave Cantin: Let’s face it, the return on capital, the return on equity in the automotive industry, the return on investment, is still incredible. In my eyes, there’s no fear, from what we hear from all the lending institutions that’s involved in the automotive industry, and looking to grow and prosper with its clients, and really grow in 2020. There’s no fear.
Dave Cantin: It’s understanding the market that we’re in today. Right? In the last three to five years have been a more conservative approach. There’s a lot of banks that have a lot of money, that are ready to deploy. The people and the dealers that have to waiting on the sideline are going to begin to take advantage of that
Jim Fitzpatrick: I’m going to throw you a softball here. For a dealer, maybe a smaller dealer group, that hears about this transaction going down, and this enormous amount of money being paid, and 10 X the net profit in the EBITDA and such, do you recommend, or I guess you don’t recommend, but for the dealers out there, should they pick up the phone and call an Asbury, or call an AutoNation, or call a Sonic directly and say, “Hey, I’m thinking about retiring. You know, are you guys interested in a Chevy store in Austin or in Fort Lauderdale,” or wherever the case might be, without any guidance?
Dave Cantin: Look, that happens all the time, right? There’s probably not a time that that doesn’t happen. There’s dealers, there are sellers all the time reaching out to the public companies, and even large privates, requesting if there’s an acquisition to [inaudible] to take place.
Dave Cantin: We suggest to have an advisor. We suggest to properly make sure that you’re going into it understanding the valuation of your business. Dealers work decades upon decades to create it. It’s in their benefit to make sure that they’re maximizing their walkaway.
Jim Fitzpatrick: It’s a transaction that, for the most part, maybe the dealer has never gone through one. Maybe I inherited the company from my father who inherited it from his father, or parents I should say. And I’ve never gone through a buy/sell, and here I am ready to enter into a multimillion dollar agreement with somebody that does this all the time, a few times a year. The old adage, “Who do you think is going to win that game?” If I go in without any guidance, I’m really taking a big chance, aren’t I?
Dave Cantin: You are, absolutely. Look, there’s a lot of buyers out there in the industry that this is what they do. They’re seasoned buyers. Especially public companies. They understand how to buy an acquisition. It’s not their first rodeo. They do this all the time. They understand what the best fit is for their portfolio and their platform, and how to properly invest in purchasing and acquisition.
Dave Cantin: Sellers at most point only do it once in their lifetime. They might buy a store, and add one or two stores throughout their lifetime, or some might add 10 stores throughout their lifetime. I can’t tell you how many clients we represent that have purchased 10 but never sold one. It’s different sitting on the other side of the table. Absolutely.
Jim Fitzpatrick: Well, let’s switch gears here a little bit. We’re quickly coming upon the end of 2019 talk to us about the buy/sell market and how it’s shaking out for 2019.
Dave Cantin: 2019 started off as an incredible year in acquisitions, and really just had a real steady path throughout the entire year. We knew that it would be a little bit more conservative, going from ’18 to ’19, as far as how certain buyers were looking to get out there, and what markets they were looking to really invest in.
Dave Cantin: It’s really become where there’s certain markets that are outperforming, and then there’s markets that are just consistent. They’re steady. If an acquisition does become available, there’s a local dealer that would want to obtain that. But you have a lot of large privates and publics that are looking to really dominate within their markets, that have solid infrastructure, and just build as many stores and platforms they can around that market.
Dave Cantin: 2019 has been healthy. It’s been a consistent buy/sell market, and as we see with Asbury’s acquisition, it’s really carrying some significant value into 2020, I believe this is going to be an incredible year.
Jim Fitzpatrick: Yeah. How does it compare to 2018?
Dave Cantin: 2018 was a more of a conservative, consistent market, wasn’t bad at all. There were still a lot of privates and publics out there spending money and adding to their platforms. But I think what we’re starting to see now, which we’re going to see more of is the more mid-size and larger privates are looking to add. As you know, there’s a lot of capital out there that’s being offered to be able to do this. Dealers are getting a little bit more strategic of how they’re properly going out there and making these dealership acquisition transactions happen. And banks are really partnering with their clients to ensure that this can happen.
Dave Cantin: We’re going to see some significant growth between the mid-size auto groups and the larger privates. And as you could see with the publics, they’re not backing down. They’re in buy mode, and they’re properly structuring which groups to purchase.
Jim Fitzpatrick: Did 2019 meet, or exceed, or fall short of your expectations?
Dave Cantin: DCG had an incredible year in 2019. When we set forth first quarter of our goals, and we just tried to set a quarterly goal throughout the entire year, we’ve exceeded each quarter, and luckily we’re going into 2020 with, with a lot more pending acquisitions than we originally planned.
Jim Fitzpatrick: It’s smooth sailing for 2019 and into 2020. Are you getting a lot of phone calls as a result of this Asbury activity hitting the airwaves?
Dave Cantin: I don’t think I ever received more text messages the other morning than I have. I mean, every dealer there was, was texting me. “Did you see the news? Did you see the news?” I probably had the link sent to me 300 times, and it was a great day for the automotive industry, let’s face it. Look, it’s all about carrying on a legacy. I believe Asbury is going to do an incredible job of taking that legacy to the next level.
Jim Fitzpatrick: We recently saw another publicly traded company that’s really been doing some great things over the last five years. Lithia Automotive, just I guess recently, raised $400 million in some fresh funds. Talk to us about that.
Dave Cantin: Lithia is a fantastic organization. What Brian DeBoer has done has been incredible. Great, great, great guy from an executive level. Understands the industry. Understands the importance of a solid infrastructure to run it, to run an automotive platform.
Dave Cantin: Lithia has done, I mean we see the great job that they’ve done over the last five years with their acquisitions. Starting all the way with the DCH acquisition that we recently saw, but they’re going to do some big things. I’m confident of that.
Dave Cantin: Brian DeBoer is extremely talented, understands the markets to properly invest in, and understands that he has to invest in people in those markets, as well, to operate these stores. I’m excited to see what Lithia is going to do in 2020, and how they’re going to counteract to Asbury’s acquisition.
Jim Fitzpatrick: Yeah, yeah, for sure. I’m sure all the publics are right now meeting in some conference rooms, going, “A, how did that one get away from us?” And then, “B, what big, what bold moves are we going to make to show Wall Street that we have the horsepower, and we can make some big moves in this area, too?” Right?
Dave Cantin: I couldn’t agree any more. I believe that every one of them this week are plotting out and saying, “Okay, where are we on our large acquisition or platform that we’re working and when are we going to make our announcement?”
Dave Cantin: Like I said, we’re going to hear some great announcements over the next week or two, or we’re going to hear them the beginning of January. But I’m excited to see what’s going to happen closing out 2019 and really getting us into the beginning of 2020. It’s going to be exciting.
Jim Fitzpatrick: Last week I interviewed Jeff Dyke, who as you know is the president of Sonic Automotive Group, and I asked him about the footprint that Sonic had here in 2019. He said, “We actually reduced our footprint and sold off some stores.” Not to say, and I’m paraphrasing here, but he said, “Not to say that we’re not interested in acquiring dealerships, right place, right time, right money, if everything is right then we’ll go ahead and do that.” But it seems to me that they are focusing a little bit more on really building up their EchoPark used car operation.
Jim Fitzpatrick: Have you seen dealer, some of the publics out there, and even the large private cap companies, take any look at this concept that AutoNation and Sonic has jumped into and said, “Let’s set up freestanding buildings and a separate brand for the used car operations?”
Dave Cantin: It’s really about making sure that your level of productivity, what you’re delivering with your auto group, is at its highest level of achievement. When you look at AutoNation and what they’ve done, and when you look at Sonic and what they’ve done with Echo Park, it’s smart. It’s brilliant. They’re really leveraging their infrastructure. They’re leveraging their talent inside to get the job done. I understand it’s not, for them, about so much of growth, of “How many stores do we own?” It’s really, “What it comes down to is our profitability for the shareholders.” And I completely understand that.
Dave Cantin: Look, the hardest piece of the puzzle today, that any dealer will tell you, is people. It’s staffing a dealership. It’s not so much more about just buying as many rooftops as you can, because with that rooftop you need people to operate that rooftop. When you have, when you have infrastructure, and freestanding buildings with your own brand, and your own ability to sell and maximize productivity, and most important profitability, it’s a smart and wise move.
Jim Fitzpatrick: In your opinion, for dealers that are listening, is it a seller’s market or a buyer’s market right now?
Dave Cantin: That’s a great question. It’s both. And I say that because I believe that if a seller properly prepares them self for the right exit strategy, it’s a sellers market. Understanding what the market ultimately is telling them their acquisition is worth. Look, we tell our clients all the time, “Okay, we’re going to create the evaluation. We’re going to tell you based upon your performance metrics, based upon your image of your facility, meeting the factory’s requirements based upon your location, based upon the real estate, and based upon the profitability, what it’s worth.”
Dave Cantin: But ultimately the market is going to tell us the value, and if a seller is reasonable, and they understand the market, it’s always a sellers market. It’s a buyers market as well though, because the lending institutions are being aggressive today. They’re giving money. They’re allowing you the opportunity to go out there and purchase.
Dave Cantin: If you have a good bench, and a farm team, and a good staff, you could go into just about any store and raise the bar. But you know, a lot of dealerships today are underperforming in certain areas due to probably the complacency within its own team, within its own staff. When somebody goes into a dealership, one of the first things you have to look at is productivity. Are they maximizing their ability in service? Are they maximizing their ability to perform in sales? How did their FNI numbers look? So obviously, if the right people are put into place, the levels of improvement within any store could out exceed someone’s expectations.
Jim Fitzpatrick: If somebody was going to award you a new point, some OEM was going to give Dave Cantin a new point, what would be at the top of your wishlist in terms of a brand to be awarded right now?
Dave Cantin: Wow, that’s a great question. Off the top of my head, I would probably say Lexus. Either Lexus or Porsche, one of the two. Probably a Lexis dealership in the right market, with the right amount of real estate, for the proper amount of sales that’s needed. But Lexis is definitely the top [crosstalk 00:15:58].
Jim Fitzpatrick: Why do you say Lexis? Why do you choose that brand?
Dave Cantin: Look, Lexus is an incredible manufacturer. They believe in making sure that every dealer has the ability to be profitable. They stand behind their product. It’s an incredible product. And you know, it’s such a loyal customer base. I have so many people, and friends, and family members that love the product. Every time their lease is up, they’re not even thinking twice. They’re going back and getting another Lexus.
Dave Cantin: Obviously, look, I get firsthand, get to look at a lot of my clients abilities of what they’re performing. I don’t have any clients that have a Lexus store that are losing money. Lexis does very well. Obviously, if you asked me my top pick, if I had a genie to rub, and a factory was going to give me an open point, it would be Lexus.
Jim Fitzpatrick: Has Dave Cantin never considered getting into the retail auto industry?
Dave Cantin: Dave Cantin was in the retail industry for many years. Getting back into it? Absolutely not. Look, I love what I do. This is a passion. We love taking a dealer’s legacy and carrying it on, and that’s what’s most important for us. It’s our business to make sure that their legacy is carried on, and we love what we do. There’s no better feeling than getting to that closing table, and taking four, five, six, seven months of hard work between that buyer and seller, and allowing that legacy to be carried on, and watching it firsthand. It’s an incredible feeling.
Jim Fitzpatrick: In 30 seconds or less, tell us the ad on the Dave Cantin Group. Why should a dealer call you?
Dave Cantin: Look, we have probably some of the most incredible growth specialist succession planning people in the industry. We take our time to understand your acquisition. We’re not just there to list or sell an acquisition. Matter of fact, we probably decline to not engage in more than we do. It’s the credibility within the acquisition. It’s understanding the acquisition. And most importantly, it’s getting that deal to the closing table.
Dave Cantin: Our buyers look at us as understanding that we vet an acquisition just as if we were to buy the dealer. So whenever we deliver an acquisition, excuse me, to a client, one of the things that our clients know is that that deal has already been looked upon under a microscope by our company, and we know exactly what the understanding and performance ability is or that deal. We take great pride of delivering an acquisition throughout the entire process.
Jim Fitzpatrick: There you go, dealers. Right from the horse’s mouth. Mr. Dave Cantin, CEO of Dave Cantin Group. I want to thank you so much for joining us on CBT News to discuss what 2019 turned out to be, and what we can look for in 2020. Thanks so much for joining us.
Dave Cantin: Thank you. This is exciting, and obviously, we’re going to have a lot to come in the beginning of 2020. We will keep you in the know. Thank you so much for everything. Happy Holidays to everybody out there, and have a great holiday season and Happy New Year.
CBT Automotive Network, the number one most-watched network in retail automotive. This has been a JBF business media production.