The dealership M&A (mergers and acquisitions) market has demonstrated incredible resilience in the post-pandemic economy, remaining undaunted by rising interest rates and fluctuating demand. On the other hand, the buy-sell landscape is prone to rapid change, making it difficult to answer the question: is now the right time to sell?
On this episode of Driving Solutions, host Jim Fitzpatrick is joined by Farid Ahmad, president and CEO of DSMA (Dealer Solutions Mergers and Acquisitions), a leading buy-sell advisory that has overseen some of the biggest transactions in M&A history. Now, Ahmad shares his insights into the 2023 buy-sell market and the trends he expects to continue into 2024.
Key Takeaways
1. Ahmad reports that 2023 was a very good year for the dealership M&A market, but it also presented many challenges to both buyers and sellers.
2. Most notably, the banking and lending landscape became more troublesome, especially regarding goodwill financing. Although buyers could obtain financing for stores with high blue-sky values throughout 2022, banks began to approve these loans of such size less and less over the course of 2023. Ahmad notes that automakers also became more selective in the buyer approval process, a sign of increased caution toward the M&A market.
3. For buyers looking to bypass these challenges, Ahmad recommends they look for sellers who will include the real estate in their purchase. This can attract extra financing from lenders. Another strategy is to ask for a vendor take-back (VTB), a strategy that Ahmad notes was used in an unusually high number of contracts in the 2023 M&A market. In this scenario, buyers ask sellers to loan them enough cash to cover part of the purchase, with the promise that the funds will be repaid in full with interest.
4. Chrysler, General Motors, and Ford dealerships sold the most in 2023, which is to be expected given the size of each franchise. However, a surprising number of buyers also pursued Honda and Volkswagen stores, placing them in the top five. Hyundai and Kia storefronts are also selling for huge sums of money, although Ahmad notes that their values vary from market to market.
5. In 2024, Ahmad believes that interest rates will drop, which has historically accelerated activity in the dealership M&A landscape. However, whether banks will become more optimistic in the coming months depends on a variety of external factors, including international conflict and the housing market.
6. A growing number of dealership buyers are expanding into Canada, where groups such as Lithia Motors have made impressive gains. Ahmad expects this M&A trend to continue throughout 2024, given the size of the country’s automotive market.
To learn more about the dealership M&A market, visit https://dsma.ca or catch Farid Ahmad and DSMA at the 2024 NADA Show.
"We've plateaued; 2023, in my opinion, was a plateau year, and now the only way most of these multiples have to go is down, but not dramatically." — Farid Ahmad
