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Should dealers buy, sell or stay?

Buy-sell expert advises to weigh likelihood of successorship with current high values and potential returns of staying in the gam

For Canadian car dealers, there might never be a better time to sell. Franchise values are high and buyers with fat wallets are plentiful.
But the high yearly earnings that make so many dealerships ripe targets for purchase could be ac compelling reason for an owner to stay on, says dealership buy-sell expert Erin Kerrigan, even if it means accepting a lower sales price down the road.

Most dealers appear to understand this, despite fears of a sales downturn, the disruptive effects of autonomous transportation and a blossing ride-hailing lifestyle that’s offsetting traditional ownership, said the head of U.S.-based Kerrigan Advisors.

“One thing for sure, there are fewer sellers in Canada than there are buyers,” Kerrigan told the Automotive News Canada Congress.
In a changing industry, the long view should pay off.
“Smart sellers are looking to the future to determine if today is the right time for their family to exit, while astute buyers are studying changes expected in the market to identify the best place to invest. In both cases it is all about the future, rather than the present.”
Canadian sellers should expect more interest from American buyers taking advantage of the stronger U.S. dollar, she said. But at the same time, lower prices for U.S. dealerships have Canadian groups looking south. Kerrigan said she was working on two U.S. sales to Canadian buyers.
Other trends she noted:

  • More dealers are willing to take on equity investors, as minority or majority partners, to help with the high costs of growth.
  • As online merchants replace the brick-and-mortar retailers who might buy a former dealer site, dealers are less likely to want to hold on to a property when selling a franchise.
  • Large, publicly owned groups will become bigger players in the Canadian market – which now has just one public group – Alberta-based AutoCanada – because they have more resources.  “For a long time in auto retailing, there weren’t often buyers with deep enough pockets to do these kind of deals,” Kerrigan said.
  • Buyers are less focused on new-vehicle sales, where profits are thing, than they are on projected earnings growth and returns from fixed operations and used-vehicle sales. And as consumer reviews become ever more important, buyers are seeking stores with high customer-satisfaction scores.

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