The dealership buy/sell market remains active in 2024, with major acquisitions arriving every week. But with economic factors, such as interest rates and inflation, making it increasingly difficult to predict the future, many dealers are feeling apprehensive, putting off retirement until conditions settle.
On this episode of CBT Now, host Jim Fitzpatrick is joined by Willie Beck, co-managing partner at Bel Air Partners. Beck has guided many dealers through the buy/sell market, providing crucial insights into the elements buyers are searching for in a potential acquisition. Now, he shares updates on the market’s current status and offers his predictions for the next year of M&A activity.
Key Takeaways
1. The automotive buy/sell market is currently very active, but there have been notable variances in demand and pricing depending on franchise and region. High-demand markets and popular brands like Toyota, Mercedes, and BMW, especially in areas like Florida, are experiencing incredibly high demand and pricing. Conversely, brands in slower or smaller markets are not seeing robust pricing on the same level as others, indicating buyers are taking a selective approach.
2. The recent increase in interest rates has significantly affected the cost of borrowing for dealers, altering the dynamics of deals. Whereas previously, dealers could borrow at rates as low as 2%, they are now facing rates of around 7%. This change affects the return on investment for dealers, making them more cautious and potentially affecting the willingness of sellers to adjust their expectations.
3. Despite higher borrowing costs, there is an understanding within the buy/sell market that these conditions might be temporary. With the Federal Reserve indicating rate cuts may be on the table later in 2024, dealers may soon have opportunities to refinance. This has encouraged retailers to proceed with acquisitions, betting on the chance they can receive lower rates in the near future.
4. Despite the current financial climate, demand in the buy/sell market remains strong. Dealers are pursuing strategic opportunities within specific markets or brands while also taking into consideration family succession planning, giving the next generations an opportunity to grow in the retail automotive sector.
5. Ultimately, the primary reasons for selling dealerships remain consistent: aging owners, lack of succession plans, and a wish for retirement. Despite the challenges presented by the economy, there remains a healthy appetite in the dealership buy/sell market, driven by both domestic and international investors.
"And, of course, the top-selling brands continue to be Toyota, Lexus, and...Porsche. The tier one luxury [brands] are in great demand." — Willie Beck
