Mark Wahlberg And A Bunch Of Private Equity Firms Want To Sell You A Car (Or Buy Your Dealership)

Written by:
Jeff Sheban and Deborah Balshem
March 26, 2019

Despite falling US auto sales and a changing retail landscape, new car dealerships are flying off the lot.

For the fifth year running, dealership buy-sell transactions topped 200 in 2018, and are projected to surpass that mark again this year, according to industry broker Kerrigan Advisors. Not surprisingly, the big keep getting bigger: the number of auto groups with more than 10 dealerships now stands at 176, a 65% increase since 2009.

Even actor, businessman and former rapper Mark Wahlberg joined the buying frenzy last year, investing in a dealership in Columbus, Ohio, that now goes by Mark Wahlberg Chevrolet. What’s next, Harrison Ford selling us Chryslers?

The vast majority of buyers are other dealers, who have a built-in advantage because the automakers themselves – Ford, GM and others – must approve who gets a dealer franchise, and they insist on buyers with previous experience in the business or having one as a partner. Wahlberg teamed up with an existing dealer to get his foot in the car dealership door.

Private equity previously avoided auto retail because of that approval process, but that began to change a few years ago after Warren Buffett’s Berkshire Hathaway acquired auto dealer Van Tuyl Group (now Berkshire Hathaway Automotive) for a reported $1 billion-plus. At the time, Van Tuyl was the fifth-largest dealership group in the US, with more than $9 billion in revenue. The deal served to open the eyes of PE and others as to the possibilities in the space, said SunTrust Robinson Humphrey Managing Director James Taylor.

“The car business is really, really good,” Taylor said, a point no longer lost on growth capital.

Specifically, there are two things about the business that private equity finds hard to resist: consistent profitability and aging ownership without succession plans. Despite slowing new vehicle sales, dealership gross profits have increased every year since 2014, reaching an average of $6.9 million per dealership in 2018, according to industry sell-side advisor Erin Kerrigan. One reason is continuing growth in service and parts, auto retail’s most profitable revenue stream. Service and parts gross profit margins are nearly 10-times higher than new vehicle sales.

Meanwhile, Father Time is kicking tires in a showroom near you. In the Northeast and Southeast, the average age of a dealer principal is 70. And many single-store “mom-and-pop” dealerships across the country are facing succession issues.

“A lot of these families are running up against transitioning to the third or fourth generation, which is more statistically challenging,” Kerrigan said, noting that only 12% of family businesses transition to the third generation and only 3% to the fourth.

As local, independent dealerships give way to multi-state groups, will it matter to consumers? Dave Cantin, CEO and founder of Dave Cantin Group, an automotive retail M&A firm, said it could result in better deals and a more pleasant car-buying experience.

“The days of negotiating two hours to buy a car are over,” he said, because larger, more efficient dealer groups can afford to give you a break. “It’s no longer a focus on how much can we make on every car, but how many cars can we sell to you and your family and service them for years to come.”

Maybe now would be a good time for all those mysterious sales managers in the back room to approve this offer: early retirement.

Jeff Sheban is Mergermarket’s Chicago-based Midwest Editor; Deborah Balshem is a senior reporter who covers multiple industries from Fort Lauderdale.

About Kerrigan Advisors

Kerrigan Advisors is the premier sell-side advisor and thought partner to auto dealers nationwide. The firm advises the industry's leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Kerrigan Advisors has represented some of auto retail's largest transactions and advised more of the largest dealership groups in the US than any other buy/sell firm in the industry. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, the firm does not take listings, rather they develop a customized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors' sell-side advisory and capital raising services, the firm also provides a suite of consulting services including growth strategy, market valuation assessments, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate due diligence.

Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report®, which includes Kerrigan Advisors' signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments.—To download a preview of the report, click here.—The firm also releases monthly The Kerrigan Index™ composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail.—To access The Kerrigan Index™, click here.—To read the—2023 Kerrigan OEM Survey, click here.—Kerrigan Advisors also is the co-author of NADA's Guide to Buying and Selling a Dealership.

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