As the dust from the COVID pandemic settles on the automotive industry, M&A activity has become more energetic than ever. Dealers are now taking the next steps in their careers, whether this means making an exit or expanding their business, in greater numbers than ever before. Alan Haig is the President and Founder of Haig Partners, an investment bank serving dealers in their M&A efforts. On this episode of Inside Automotive, Haig joins host Jim Fitzpatrick to discuss why so many storeowners are looking for a change of pace, the state of M&A activity, and what buyers should do to navigate the process successfully.
Haig believes that the explanation for the M&A market’s sudden growth can be found by looking at dealer profits. Thanks to the last few years of relative success, storeowners have gained enough money to do one of two things: retire early or expand. Those looking to leave the industry have already achieved their goals. “They never have to worry about their family’s financial future again,” explains Haig. Furthermore, high-pressure sales environments and fierce competition are steadily coming back to the car market, despite the ease with which retailers have run their businesses over the last three years. Many storeowners are looking to leave the industry before it returns to its former state. Meanwhile, those looking to expand their businesses, such as investors and dealer group executives, are anxious to do so before a market normalization, so that they can take advantage of high profit margins before they evaporate in the face of better supply.
Haig notes that both car buyers and sellers stand to benefit from the market’s current state. While profits have declined slightly in the first few months of the year, dealers are still raking in revenue well over what they made before the COVID pandemic. Many of the concerns retailers had over electric vehicle makers using the direct-sales model, such as Rivian, have faded, as have worries over subscription models. Haig notes that the business is so strong that his firm is positioned to sell the highest value storefront on record.
"It's still an excellent time for folks to come to market if they want to exit the business, because we're finding lots of buyers that still want to grow" - Alan Haig
For dealer groups who struggle to keep profits up at acquired storefronts, Haig explains that they need to let successful dealerships be successful. Businesses do not obtain large market shares and quality CSI rankings without first acquiring in-depth knowledge of their local market. Companies often make the mistake of buying a successful store and forcing its team to adopt standards poorly optimized for its region, something Haig has personal experience with. Above all, buyers should be adaptable, allowing newly acquired dealerships to provide the services which work best for their communities, rather than forcing them to adopt a one-size-fits-all approach.