The dealership buy-sell market has changed substantially in 2023 under the weight of economic headwinds, new technologies, and uncertainty toward the future. Knowing the landscape of today’s M&A sector is more crucial than ever for those looking to exit the car business.
On this episode of Driving Solutions, host Jim Fitzpatrick is joined by Farid Ahmad, founder and CEO of dealership M&A firm DSMA. For years, Ahmad has helped match retailers with the best possible buyers, overseeing some of the biggest transactions in the modern buy-sell market. His insights into both sides of the transaction allow him to guide retailers through their exit strategies like few others can. Now, he discusses how today’s M&A landscape has changed and what dealers can expect in the future.
1. The dealership buy-sell market has deteriorated in 2023. Economic headwinds such as high-interest rates and early-year instability among U.S. banks have made lenders and buyers more cautious, resulting in lower “goodwill” payments.
2. As a result, dealers have had to reassess the value of their assets. Some have decided to wait until the buy-sell market recovers, but many are still actively searching for storefronts to acquire or sell their own.
3. Rising interest rates and operational costs have led some family-owned dealers to leave the automotive industry entirely rather than pass their business on to the next generation. Some dealers have leftover concerns that electric vehicles will weaken valuations in the coming years, making now the ideal time to sell.
4. For those looking to sell, Ahmad urges dealers to get their businesses appraised using a partner such as DSMA. Retailers must also clean their books, ensure operational efficiency, and check that their financial records are in order. Dealers should also set realistic expectations for what buyers are willing to pay.
5. For dealers looking to purchase, keep deals simple. Lengthy letters of intent or complicated proposals can deter high-quality sellers. Ahmad also recommends that buyers remain flexible on smaller details and show leeway toward dealership owners where necessary. Finally, today’s fast-paced buy-sell market means that retailers need to have their finances in order before they approach a possible seller.
"Some of these dealers that are looking to transition out of their business have realized unless their next of kin take a large loan, which they don't believe is going to help them, they're looking for alternatives...I do think there's a shift moving from really focusing on the next generation to: 'Maybe I should take all my chips off the table today and sell it to a growing organization.'" — Farid Ahmad