As I approach my tenth year in the Automotive M&A Arena, I find the market as active as ever. There continues to be a great deal of activity from sellers with clear “reasons” to sell. These reasons include age, lack of a capable successor, challenges related to technology, factory issues, and a general lack of passion for the business that once existed. According to industry sources, the average age of single rooftop dealership owners is approximately 72 years (Auto Dealer Today Magazine).
There is another group of potential sellers that I classify as “Sellers Who Should Consider Selling” due to the potential size of the transaction. Specifically, I’m referring to owners of premier franchise brands such as Toyota, Lexus, Porsche, Mercedes-Benz, BMW, Land Rover, Subaru, Honda, Hyundai, and Kia. Some readers may argue about including Hyundai, Kia, and Subaru in the category of premier brands. However, from a broker’s perspective, these are highly sought-after brands that currently command a premium.
Why should these sellers consider selling? Value! For instance, Toyota dealerships in metro markets, particularly in Florida, can command valuation multiples as high as 10 times earnings in today’s market (Mercer Capital). Given the tremendous demand for Toyota and other premier franchises, potential sellers should consider the value of their stores in this highly competitive environment. A store earning $6 to $10 million annually, depending on the brand, could command a $100 million valuation. Even after deducting capital gains, the remaining invested equity could pay the seller almost as much annually as they would have earned—without the associated risks of operating the business.
Throughout my ten years in this field, I’ve asked several premium brand owners whether they would entertain selling. The answer is usually no—until a buyer approaches with an offer of $50 to $100 million. Then, we all read about the sale in Automotive News. Interestingly, there are often more qualified buyers for premium brands than there are for domestic franchises. My entire day is spent interacting with these buyers, always seeking premier brands in the right markets.
Most “off-market” sellers simply do not want to go through the sales process—likely because they underestimate the value of their stores. However, if they realized the immediate and overwhelming interest from extremely qualified buyers, they would see that the limited “process” is well worth the effort. In today’s market, an average luxury brand in a metro area would not remain available for more than 30 days, provided it is properly marketed and packaged.
Current owners of Hyundai, Kia, and Subaru franchises are experiencing incredible profits as these brands have matured and are now part of almost every gated community in the United States. The acquisition cost of these franchises was relatively low because many were purchased when the brands were less attractive. Today, Hyundai and Kia dealerships typically bring multiples of 5 to 7, while Subaru franchises can command even higher multiples, especially in metro markets.
Timing is everything in business. Eight years ago, the value of a premier franchise was minimal compared to today’s market. Add to that the entry of private capital acquiring premier brands, and values have never been higher. Additionally, most auto dealers remain optimistic about the M&A market, with a positive outlook on dealership valuations and profitability (CBT News).
Before ruling out the idea of selling, owners should determine the current market value of their stores. It’s highly likely the value will be a number too large to ignore. A professional valuation can help potential sellers arrive at “the number.” Armed with specific data, making an informed decision becomes much easier. Gill Automotive Group, LLC offers no-cost valuations and has an extensive list of “A” buyers actively seeking premier brands.
Price sells everything! And remember, the view from the Ritz in Maui is a lot better than the view of the asphalt outside the showroom window.
