Industry consolidation continues as dealers descend on Las Vegas this week for annual meetings and conferences.
A little more than a month after first revealing the planned purchase, late on Tuesday afternoon DealerSocket announced the completion of its acquisition of Auto/Mate, emphasizing the move brings together two customer-service focused companies and offers dealers a comprehensive choice for an all-in-one, Dealer Management Systems (DMS) platform for their stores.
“The combination of DealerSocket and Auto/Mate gives dealers a long-awaited and much-needed alternative for an integrated, connected platform of mission-critical software for dealerships,” said Sejal Pietrzak, chief executive officer and president of DealerSocket.
“Auto/Mate has built a reputation as a transformative, fast-growing DMS with an unmatched commitment to customer service,” Pietrzak continued. “As we look at our combined company, there are tremendous opportunities for innovation, while we maintain our strong focus on support. I am excited about this acquisition and what it represents for us, dealers, and the broader market.”
The company explained that integrating Auto/Mate’s DMS with DealerSocket’s current suite of software products for franchised dealers, including DealerSocket’s CRM, Inventory Management, Digital Retail, Equity Mining, and Digital Marketing / Websites, can offer franchise dealers a complete platform of software solutions.
DealerSocket added that it now will offer independent dealers two DMS options: DealerSocket’s iDMS and Auto/Mate DMS, both software solutions supporting the needs of the independent and buy-here, pay-here markets.
“Auto/Mate is thrilled to become part of DealerSocket. We have a shared mission of serving dealers with great software and customer service, and that makes this a winning combination for our customers, partners, and team members,” said Mike Esposito, president and chief executive officer of Auto/Mate.
“Our combined company will be a powerhouse in the market, offering dealers industry-leading service and software, and most importantly, continuing to be dedicated to our “By Car People, For Car People” motto,” Esposito continued in a news release. “We are excited about this new chapter for Auto/Mate and the industry.”
The combined company now supports more than 9,000 dealerships and well over 300,000 active users across its products. DealerSocket said it plans to invest significantly in seamless integrations with Auto/Mate. The roadmap includes important and valuable technology developments including artificial intelligence (AI) and machine learning (ML), and continuous improvements to user interfaces with a focus on making all aspects of the combined company’s software products even easier to learn and use, ultimately helping dealers sell more vehicles and increase profitability.
“Offering a full platform to the automotive industry has been DealerSocket’s vision for several years,” said Jonathan Ord, co-founder of DealerSocket. “Both DealerSocket and Auto/Mate share similar core values, and both have dedicated teams who have always cared deeply about dealership customers.”
DealerSocket’s other co-founder, Brad Perry, added, “After years in the making, it is terrific to finally see the combination of these two companies that are so focused on the needs of the dealer.”
DealerSocket and Auto/Mate will formally launch and celebrate their merger at the NADA 2020 show beginning on Friday. To learn more about the acquisition and combined company’s plans, dealers can visit both DealerSocket and Auto/Mate’s booths inside the Las Vegas Convention Center’s Central Hall.
“I believe we will look back years from now and realize that bringing together DealerSocket and Auto/Mate was one of the most impactful and game-changing combinations for dealers and the automotive software industry,” Pietrzak said.
Presidio Technology Partners served as the exclusive financial advisor to Auto/Mate, according to the news release.
CarGurus is expanding.
The automotive marketplace said Thursday it has purchased car-shopping platform Autolist.
Autolist, founded in 2014 and based in San Francisco, will continue to be run independently as a standalone brand and website. Founder Corey Lydstone will continue to lead Autolist and report to CarGurus chief financial officer Jason Trevisian.
The companies did not disclose the terms of the purchase.
CarGurus said this purchase of Autolist broadens its consumer audience and helps it “further enhance its unique value proposition for subscribing dealers.”
Autolist has more than 1.3 million unique website visitors each month, CarGurus said, citing Google Analytics data from December. Its app has close to 400,000 unique visitors each month, according to CarGurus, which cited Firebase data from last month.
“We are thrilled to welcome the Autolist team to the CarGurus platform. Like CarGurus, Autolist is a technology company with a pioneering mindset, which makes them a great fit with our innovative culture,” Trevisian said in a news release.
“We are excited about joining forces to provide best-in-class products and services that make car buying easier for shoppers and drive more sales for dealers,” Trevisian said.
CarGurus said the Autolist purchase will help it “drive consumer traffic and shopper connections for dealers across both sites, creating additional value for the company’s premium subscription dealerships.”
The company is also aiming to test new products and partnership initiatives through Autolist.
“We could not be more excited to join CarGurus, a company that shares our passion for solving big problems and building great products," Lydstone said in the release.
"The Autolist journey so far has been incredible, and with CarGurus’ massive scale and category leadership we believe we’ll be able to accelerate Autolist’s growth while continuing to deliver on our promise of building a better automotive buying experience for everyone,” he said. “I’m so proud of our team, and I am looking forward to our future together at CarGurus.”
DealerSocket has signed a deal to purchase DMS software provider Auto/Mate, the company announced Monday afternoon.
The combined entity would blend the DMS capabilities of Auto/Mate with the vast array of services from DealerSocket — including CRM, digital retail/websites and inventory management, as well as independent dealer-focused DMS products — to provide what DealerSocket called “an all-in-one, unique platform where innovative software is combined with best-in-class service.”
In a news release, DealerSocket chief executive Sejal Pietrzak said, “Bringing together DealerSocket and Auto/Mate will be a game changer for our customers, our companies and the entire industry. For a long time, DealerSocket has believed that combining our companies could offer dealers a much-needed new choice for a full platform solution.
“Both Auto/Mate’s and DealerSocket’s industry-leading software and award-winning customer service help to improve profitability and processes for dealerships, and as a combined company, there are tremendous opportunities for innovation, while maintaining our strong focus on customer service,” Pietrzak said.
Auto/Mate CEO Mike Esposito added, “Auto/Mate and DealerSocket have been partners for many years, and we have many joint customers. We could not have found a better home for our technology, employees and customers than DealerSocket.
“With the scale this deal brings and the investment we will receive being part of DealerSocket, we will be able to offer our customers and the broader market a seamless platform that will further advance what is possible for dealerships.”
Monday’s announcement did not include a specific close date or share any financial details of the deal.
Until an official close has been announced, the two companies will operate separately.
Once the deal closes, the combined entity will have a roster of more than 9,000 dealership clients and 300,000-plus active users.
“Auto/Mate has deep and long-standing relationships with their customers as well as impressive customer win rates from the industry’s largest DMS providers. Auto/Mate’s success is indicative of the strength of its innovative technology and the commitment of its employees who deliver an excellent customer experience to dealerships,” continued Pietrzak. “I am excited to welcome Auto/Mate’s team to DealerSocket, and we look forward to investing further in our joint products and our teams as we continue to deliver for our customers.”
Before stores intensified their holiday-season sales efforts, both Haig Partners and Kerrigan Advisors released their third-quarter dealership buy/sell activity reports, highlighting how activity during the timeframe put the transaction pace on a healthy course to round out 2019 and to begin 2020.
Beginning first with the Q3 2019 edition of The Haig Report released by Haig Partners, the firm said the number of public and private dealerships that sold in the U.S. decreased 31% in Q3 2019 compared to Q3 2018, dropping from 106 to 68.
Excluding a unique transaction in Q3 2018 that included 28 stores of the Ken Garff Automotive Group, Haig indicated the number of dealerships sold in Q3 2019 represented a 12.8% decline. The firm added the number of dealerships sold during the first three quarters of 2019 decreased 36% from the same period in 2018.
Haig calculated that acquisition spending in the first three quarters of 2019 by publicly traded auto retailers decreased by 28% compared to the same period in 2018, but spending in Q3 2019 jumped 80% year-over-year.
Haig’s report indicated profits at privately owned dealerships over the last 12 months through September came in 2.9% higher than for the full year 2018. Threats from technology disruptors such as autonomous vehicles, electric vehicles and ride sharing appear to be dissipating, according to Haig’s analysis.
Haig also noted blue-sky multiples remained essentially unchanged from the second quarter. Haig lowered the estimated blue sky multiple on the top and bottom end of the range for Infiniti from 3.0 times-3.75 times to 2.75 times-3.25 times, and increased the top-end of the blue sky multiple range for Subaru by 0.5 times to 5.0 times-6.5 times.
When higher profits per dealership are combined with the same 4.80 times average blue sky multiple as the previous quarter, Haig estimated the value of privately owned dealerships increased 2.9% from year end 2018 to Q3 2019.
Haig Partners president Alan Haig said in a news release, “Based on reports from the market and our own practice, we are expecting a good number of transactions to close in the first quarter of 2020. There are more dealerships available for sale than in the past, and there are many buyers with access to plenty of capital.”
Other key findings from the Q3 2019 Haig Report that’s available here also included:
— Macroeconomic indicators such as GDP, employment, inflation, fuel prices and consumer sentiment remain highly favorable for dealers.
— Other trends, such as lower interest rates, lower average monthly car payments and increasing dealership profits, are helping dealers.
— Fleet sales are up 0.2% in Q1-Q3 2019, but retail sales were down 2.3%.
— Floorplan interest expense has swung from a credit of $119 per vehicle in 2015 to an expense of $121 so far in 2019.
— The average dealership pre-tax profit for the 12-month period that ended Q3 2019 was $1.40 million, up 2.9% from year end 2018.
— Average estimated blue-sky value per dealership increased 2.9% in Q3 2019 to $6.7 million compared to $6.5 million at year-end 2018.
— The average stock price for the six publicly traded franchised auto retailers is up 79% in 2019.
— Most investors now believe that, for the foreseeable future, threats from autonomous cars, ride sharing, and electrification will not have a measurable impact on dealership values.
Views from Kerrigan Advisors
The team at Kerrigan Advisors said the dealership buy/sell market is now poised to register another 200-plus transaction year in 2019.
According to the firm’s Third Quarter 2019 Blue Sky Report, Kerrigan Advisors indicated the growth in the buy/sell market is supported by a healthy U.S. economy, led by consumer spending and spurred by a reduction in the Federal Funds Rate by a quarter percentage point — the third such rate reduction since July.
And Kerrigan Advisors added that also fueling the strength of the buy/sell market is strong dealership earnings growth, largely driven by used vehicles and fixed operations.
“The industry’s ability to grow earnings despite flat new vehicle sales really shows the resilience of the dealer model,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “That impresses investors and, with more sellers coming to market, buyers are here, seeking acquisitions and investment in auto retail.
“We see an expanding pool of well-funded buyers that will easily absorb the increase in sellers — and keep the buy/sell equilibrium into 2020,” Kerrigan continued in a news release.
In addition, the Kerrigan report that’s available here also identified the following three trends, which are expected to impact the buy/sell market into the first quarter of 2020, including:
• Top franchises still receive multiples on pro forma earnings
• Image requirements are a wild card in today’s buy/sells
• Buyers increasingly focus on management in transactions
Ryan Kerrigan, managing director of Kerrigan Advisors pointed out that the buy/sell market and the strength of the economy has also influenced the acquisition strategy of U.S. public dealership groups.
“Even though the publics reduced their acquisitions spending in 2019, we believe this was a byproduct of the 2018 decline in their market capitalizations,” he said.
“Considering their year-to-date valuation rebound, we expect the publics’ U.S. dealership acquisition spending to rise over the next six months, as evidenced by Asbury’s recent announcement of its billion-dollar acquisition of Park Place Dealerships,” he went on to say.
Other highlights from the Third Quarter 2019 Blue Sky Report by Kerrigan Advisors included:
• Average dealership blue sky values increased 2.9% in 2019 due to improvements in earnings and relative stability in average blue-sky multiples.
• Volkswagen’s lower end multiple increased from 2.0 to 2.5. This is a result of several positive indicators for the franchise, including rising buyer demand, 2019 sales growth and the OEM’s renewed focus on dealership profitability.
• Chevrolet and Ford’s high-end multiples were downgraded from 5.0 to 4.5 and their low-end multiples were downgraded from 4.0 to 3.75. Buyers’ willingness to pay higher multiples for these franchises is beginning to diminish in part due to their increasing reliance on truck sales, which are considered more economically cyclical.
• Nissan’s low-end multiple was downgraded this quarter from 3.0 to 2.5. This decline reflects the continued challenges faced by the franchise, both from an OEM management standpoint and a buyer demand perspective.
• The multiple outlook for Audi was also downgraded this quarter. Audi sales are underperforming the luxury market in 2019, down 5.3% year-to-date, versus a luxury sales decline of 1.3%. Kerrigan Advisors expects Audi’s expensive facility requirements, as well as declines in dealer profitability are the primary reasons for the negative sentiment.
• In the third quarter, buy/sell activity picked up with 59 transactions closing, as compared to an average of 51 transactions for the first two quarters of the year.
• The average dealer is tracking to an impressive 9.3% earnings increase and is approaching 2015’s peak profit level of $1.5 million on an annualized basis.
• 86% of dealers expect the valuation of their dealerships to increase or remain the same in the next 12 months according to the 2019 Kerrigan Dealer Survey results released in October.
• Dealers have successfully shifted their focus from new vehicle sales (5.4% average gross margin) to used vehicle sales (11.4% average gross margin), resulting in improved dealership profits, despite declining new vehicle sales. The average dealer is approaching a 1:1 used to new vehicle ratio, having increased the used to new ratio by 9.8% since 2018.
• On average, dealers saw fixed operations revenue grow 5.1% through the third quarter of 2019. As a result, fixed absorption (service and parts gross profit as a percentage of total fixed overhead expense) increased to the highest level since 2010. Today, dealers are less reliant on the new vehicle department to cover the costs of running their business.
• The fastest growing auto retail groups have greater than 11 dealerships, while those groups with fewer than five dealerships are on the decline. “As the auto retail industry evolves, scale will be a key differentiator and size could be the biggest driver of success,” the report said.
Asbury Automotive Group has agreed to buy Park Place Dealerships for $1 billion cash, excluding inventory, the public retailer announced Thursday.
The deal gives Asbury a boost both in Texas and within the luxury market.
Park Place’s operating assets include17 franchises, including 15 in the Dallas-Fort Worth market. One of those 17 franchises is an open-point Jaguar/Land Rover dealership set to open in the first quarter in Austin, Texas.
All told, the portfolio includes three Mercedes-Benz, two Lexus, two Jaguar and two Land Rover franchises, plus one franchise each of Porsche, Volvo, Bentley, Rolls Royce, McLaren, Maserati, Karma and Sprinter.
Texas would represent 36% of revenue for Asbury following the deal and luxury brands would represent 50% of the dealer group’s revenue.
“Park Place is highly regarded as one of the best and most efficient operators of luxury stores in the industry,” Asbury president and chief executive officer David Hult said in a news release.
“Their portfolio of stores comes with a strong base of loyal clients and 2,100 long-term team members throughout the high growth Dallas/Fort Worth market,” he said.
“We are also excited to grow our presence in Austin, Texas with a Jaguar/Land Rover open point, which is another high growth luxury market. This acquisition will transform our total portfolio to 50% luxury stores and add approximately $2 billion in expected annualized revenues.”
Included in the price is $785 million in goodwill, roughly $215 million for real estate and leasehold improvements, plus about $30 million for parts and fixed assets. The company anticipate the deal will close in the first quarter.
Along with a pair of other dealership transactions involving Kerrigan Advisors, one of the dealer groups honored during the Used Car Awards given during Used Car Week 2019 recently added to its portfolio of rooftops.
HGreg.com — the Tier 3 Dealer Group Award Winner in a program sponsored by TradeRev — recently completed its acquisition of one of the largest Nissan dealerships in the U.S. from AutoNation. Now known as HGreg Nissan Kendall, the dealership is located at 17305 S Dixie Hwy, in Palmetto Bay, Fla., southeast of Kendall.
With this important acquisition, HGreg.com expands its portfolio of Nissan dealerships to two in Florida and six nationwide.
According to HGreg.com, the value of the transaction is estimated at $75 million including property, upgrades and facility improvements as well as inventory.
“Since opening our first location in South Florida in 2010, we’ve been building something very special in the region,” HGreg.com president John Hairabedian said in a news release. “We’ve set out to redefine the industry through a new customer experience that is built around convenience and choice, and it’s resonating with consumers.”
The dealership features a 71,500 square-foot building and 14.25 acres of property. The dealership also enjoys a direct pipeline to the large selection of pre-owned vehicles available through the growing HGreg.com network in south and central Florida.
“We look forward to bringing to life our slogan of ‘Car buying, redefined’ to the Kendall area,” Hairabedian said. “We’ve built our business model to accommodate the customer journey, which also includes our website, 100,000 square-foot regional warehouse and concierge-like service for the millions of people who visit south Florida throughout the year.
“We invite anyone who doesn’t yet know us to pay us a visit to learn more. We’re open for business and ready to serve, from the trade-in phase to post-purchase servicing,” he went on to say.
HGreg Nissan Kendall currently employs close to 100 people. The company said it will be looking to recruit additional personnel over the next few months.
HGreg.com owns and operates a network of eight dealerships in the state that includes HGreg.com pre-owned dealerships in Doral, North Miami, Westpark (Broward), Orlando and West Palm Beach, a new car dealership, HGreg Nissan Delray, in Palm Beach County, and a boutique pre-owned luxury car dealership, HGreg Lux, located in Pompano.
In Canada, under the HGregoire.com banner, the company oversees a network of 11 pre-owned and 10 franchised dealerships.
2 transactions involving Kerrigan Advisors
In other dealership transactions, Kerrigan Advisors represented and advised on the sale of Los Angeles County-based El Monte Honda, owned by Steve Nelson and business partners, to Washington-based Car Pros Automotive Group. This is the first Honda dealership for Car Pros, a West coast-based automotive group with six dealerships located in Washington and southern California.
Kerrigan Advisors also represented and advised Bredemann Lexus, located in Glenview, Ill., in its sale. The buyer was Glencoe, Ill.-based Fields Automotive Group, ranked No. 27 in Automotive News’ Top 150 Dealership Group List.
Opened in 1990, Bredemann Lexus is one of the first Lexus franchises in the U.S. and an award-winning dealership, receiving the Elite of Lexus Award 23 consecutive years from 1992 to 2015.
With this acquisition, Car Pros will now have six dealerships, including California stores, Kia in Huntington Beach and Glendale and Volkswagen in San Bernardino as well as Hyundai and Kia in Renton, Wash., and Kia in Tacoma, Wash.
“Car Pros is excited to expand our brand portfolio in southern California with the Honda franchise,” said Matthew Phillips, chief executive officer and owner of Car Pros Automotive Group.
These transactions marked the 81st and 82nd dealership moves Kerrigan Advisors has represented since 2015. It’s also the 10th Honda dealership sold by Kerrigan Advisors since July 2015 and the third Lexus franchise sold this year, making the firm one of the most active sell-side advisers in the auto retail industry.
“El Monte Honda has been serving the southern California community for decades,” Nelson said in a news release. “When it was time to sell, we needed an adviser who could discreetly and accurately represent the opportunity. Kerrigan Advisors has such deep experience representing Honda franchises, and they were able to successfully represent our interests and maximize the value of our business.
“My partners and I have operated many dealerships over the last 30 years,” Nelson continued. “This has been among the smoothest transactions we have been party to, which would not have been possible without Kerrigan Advisors.”
Kerrigan Advisors managing director Ryan Kerrigan noted, “Advising Steve and his partners on the sale of El Monte Honda was a real privilege. The buyer demand that we saw in the marketplace for El Monte Honda reflects the strength of today’s buy/sell market for top franchises, such as Honda.
“El Monte Honda is known for its professional approach to automotive sales and service, so we were determined to represent the partnership the same way and bring a buyer who would offer a continuation of those values,” Ryan Kerrigan went on to say.
Kerrigan Advisors founder and managing director Erin Kerrigan also elaborated about the Honda store transaction.
“El Monte Honda offered a unique opportunity to represent a top import franchise in one of the largest car markets in the U.S.,” Erin Kerrigan said. “It was important that Kerrigan Advisors identify the best buyer for El Monte Honda, particularly one that met all of our client’s valuation expectations and transaction priorities.
“I am confident that Car Pros Automotive Group will continue to build El Monte Honda into one of the strongest Honda dealerships in the area,” she continued.
Brent Smith of Manning, Leaver, Bruder & Berberich served as legal counsel to El Monte Honda. Christian Scali, Bert Rasmussen and Rita Campanile of Scali Rasmussen served as legal counsel and Jason Meersman of Rekdal Hopkins Howard served as an accounting adviser to Car Pros.
Meanwhile, the parties involved also recapped how the sale of Bredemann Lexus came to fruition.
“It’s never easy to decide to sell a dealership, especially one with such a long family history in the community,” said Joe Bredemann, dealer and co-owner of Bredemann Lexus and grandson of the Bredemann auto group founder, Joseph Bredemann II. “Joseph J. Bredemann II, a former blacksmith and wagon-maker, started working in the car business for the Busse Family in Park Ridge almost 100 years ago. Buick was established in 1912, and we added the Toyota franchise in 1976, and Ford in Glenview in 1990. That same year, we were proud to be awarded one of the first Lexus franchises in the U.S.
We will continue to provide the same high level of service to our valued clients at our three remaining dealerships, Bredemann Toyota in Park Ridge, Bredemann Chevrolet in Park Ridge, and Bredemann Ford in Glenview,” Joe Bredemann continued. “I’d like to thank Kerrigan Advisors for doing an exceptional job managing a competitive national sale process on our behalf, ultimately leading to our successful sale to Fields Automotive, another Chicago-based, family-owned group.
“We are confident the Fields management team, together with our former Lexus employees, will continue to provide the same level of unparalleled customer service that our Lexus clients have become accustomed to. We also could not be more impressed with the professionalism and diligence of Kerrigan Advisors,” he went on to say.
Through four generations, Bredemanns have served their community, with long-standing support to local charities and civic organizations, including Misericordia, the Park Ridge Rotary Club, The Juvenile Diabetes Research Foundation, The A.C. Nielsen Tennis Tournament benefitting the North Suburban Special Recreation Association, North Shore Community Services, Park Ridge Little League Baseball and the Park Ridge, Glenview and Niles Chambers of Commerce.
“The Bredemann family has been an important employer and contributor in Chicago and the northern suburbs for over 150 years. Their Lexus franchise has been award-winning since its start, so we were honored to represent the dealership in the sale,” Erin Kerrigan said.
“The Bredemann name, and their auto dealerships, symbolize integrity, fairness, philanthropy and first-class service. Finding a buyer with the same values who would carry on the Bredemann family legacy was an important goal of our sale process,” she continued.
Ryan Kerrigan added, “The Bredemann Family of Dealerships is one of Chicago’s most reputable. They have a policy of service excellence in all aspects of their operations, and a sincere commitment to their community. We’re honored to have represented Bredemann Lexus in this important transaction.”
William Kelly and Ira Levin of Burke, Warren, Mackay & Serritella, P.C. served as legal counsel to Bredemann Lexus. John J. Keating of Wipfli LLP served as accounting adviser to Bredemann Lexus. Stephen Dietrich and Sarah Seedig of Holland & Knight LLP served as legal counsel to Fields Automotive Group.
Investment firms evidently like the prospects they see in dealerships as a pair of wealth-driven operations recently made acquisitions — with one transaction involving a member of the Top 100 Independent Dealers previously highlighted by Auto Remarketing.
Cerberus Capital Management, which currently possesses more than $42 billion in assets, recently acquired an 80% interest in Off Lease Only, a leading independent dealership group based in Florida.
And Haig Partners recently advised Apollo Global Management on the purchase of 34 automotive and motorcycle dealership properties across the U.S. That transaction value was approximately $585 million. The dealership properties are located in 15 states and the District of Columbia.
The deal helped Apollo Global Management to add to its assets under management of approximately $323 billion.
“Real estate is one of the biggest components of value in auto retail, and this purchase of dealership properties represents one of the largest transactions in our industry’s history. We were honored to assist Apollo on this transaction,” Haig Partners president Alan Haig said in a news release.
“The auto retail industry continues to perform well and we are seeing good returns to dealership owners and investors,” Haig continued.
That trend certainly appears to be the case for Off Lease Only. Under the terms of that transaction mentioned in a news release, Off Lease Only founders Mark and Eileen Fischer will maintain 20% ownership of the company and will continue to provide strategic direction and support.
With four Florida retail locations and a robust online platform, Off Lease Only is one of the largest independent dealers in the United States. The company offers an expansive selection of quality cars and has sold hundreds of thousands of vehicles worldwide.
“Off Lease Only’s tremendous success is a testament to its strong business model and the unmatched value proposition it offers customers,” said Scott Wille, co-head of private equity and senior managing director at Cerberus.
“We look forward to working with Mark, Eileen, and their talented team to expand the company’s footprint and further strengthen the business through strategic investments and the integration of operations and technology initiatives,” Wille continued.
According to data provided to Auto Remarketing from Cross-Sell Interactive, Off Lease Only retailed 43,151 units last year at its Florida locations in Orlando, Opa-Locka, Palm Springs and North Fort Lauderdale.
“From our humble beginnings, Off Lease Only has grown into a market-leading business thanks to the hard work and commitment of our outstanding tea,” Mark Fischer said. “Eileen and I are thrilled that Cerberus recognizes our talented employees, superior platform, and best-in-class customer service. Cerberus brings extensive financial, operating, and industry expertise and positions Off Lease Only better than ever for its next phase of growth.”
In conjunction with the transaction, Leland “Lee” Wilson will join Off Lease Only as chairman and chief executive officer. Mark Fischer will stay on as co-CEO to ensure a smooth transition, after which he will continue to be a member of the executive committee of the Board.
Wilson has more than 30 years of operational, financial and managerial experience, including most recently as executive chairman of Carrier & Technology Solutions, one of the largest insurance outsourcers based in Florida. Wilson was formerly vice chairman and chief financial officer of Chrysler Financial and, before that, was an operating executive for Cerberus Operations and Advisory Company.
“I am excited to join Off Lease Only and look forward to working with their exceptional team to execute on the many growth opportunities ahead,” Wilson said.
“Through this partnership with Cerberus and the Fischers, we will be able to position Off Lease Only for continued success while maintaining the customer-focused business model that has always been the foundation of the company," Wilson went on to say.
After discussions and negotiations that spanned “several years,” Columbus Fair Auto Auction (CFAA) became part of the XLerate Group on Friday afternoon.
During a phone conversation with Auto Remarketing just a couple of hours after the acquisition closed, XLerate chief executive officer Cam Hitchcock conveyed a message to customers of CFAA, an auction that’s been operating near the Ohio capital for more than 60 years.
“Their service team isn’t changing,” Hitchcock said. “The same individuals who have taken care of them for many years at Columbus Fair will continue to take care of them going forward on the commercial consignor side and the dealer side. I would expect more of the same, superior customer service and a commitment to excellence.”
Columbus Fair joins XLerate’s established group of auctions, which have physical and satellite sale operations in California, Florida, Georgia, Illinois, Michigan, New Mexico, Pennsylvania, South Carolina, Texas and Wisconsin. Hitchcock pointed out the acquisition diversifies the group’s portfolio more than just geographically.
“We’re always excited when we acquire very high-quality sales,” Hitchcock said. “Columbus Fair has some relationships with certain consignors that the other XLerate auctions don’t have, and conversely, XLerate has relationships with certain consignors that Columbus Fair doesn’t have. We are looking to grow Columbus Fair as well as the other existing sales. Columbus Fair is just a phenomenal addition in that regard.”
And that addition arrived on Friday afternoon following what Hitchcock said took “several years” of dialogue.
Hitchcock recapped in a news release that CFAA was started by Bill Jacobs, Alexis Jacobs' father, in 1958. She has run the sale since her father’s death in 1982.
“CFAA is an iconic independent sale with an impeccable reputation and consistently superior customer service,” Hitchcock said in that news release. “These attributes are a great fit with XLerate’s operating philosophy and track record of acquiring sales with strong brand equity.
“It is an honor that Alexis and Greg Levi have entrusted us to carry forward the Jacobs’ legacy at CFAA,” Hitchcock continued, “This acquisition bolsters XLerate’s presence in the critical Midwestern market and our capabilities to service large fleet/lease and financial institution customers.
“We are excited that Greg Levi and his team will join XLerate’s highly talented management group. XLerate’s team will benefit from Greg’s deep experience in consignor compliance and digitally-enabled sales platforms,” Hitchcock went on to say.
As mentioned, CFAA has been in continuous operation since 1958 and features financial institution, fleet/lease and dealer consignment sales each Wednesday at its Obetz, Ohio, location. The auction operates an 11-lane arena, reconditioning facility, body shop, and mechanical shop situated on approximately 154 acres.
“Joining the XLerate group is the right choice for CFAA’s customers and employees,” CFAA principal owner Alexis Jacobs said. “We identified a cultural match that felt comfortable for both our employees and our customers. The support and resources that the XLerate offers to its auction family were key factors in my decision to sell to XLerate.
“My auction family is excited to join a high-quality, high-integrity group of operators who share our commitment to providing superior customer experience and a powerful commitment to the communities where they operate,” Jacobs went on to say.
United Road used the acquisition route to expand its operations on Monday.
United Road, in partnership with its owners, The Carlyle Group, and other investors, announced the acquisition of Team Drive-Away (TDA) and its affiliates Driveaway USA and Fr8 Management from CID Capital.
Based in Olathe, Kan., TDA is a national non-asset-based commercial vehicle logistics provider specializing in matching professional drivers with moves of used and new heavy-haul Class 8 trucks for sellers and buyers as well as moves to reposition and optimize fleets. TDA handles 20,000 vehicles annually via a national network of more than 500 independent contractors.
Together with TDA, United Road said in a news release that it will move more than 4 million new, used and specialty vehicles in 2019.
Officials added that the TDA headquarters will remain in Kansas. Financial details regarding the acquisition were not disclosed.
“Team Drive-Away is a natural fit for United Road that further diversifies our business,” United Road president and chief executive officer Mark Anderson said. “TDA is a customer-driven business that brings new heavy haul capabilities to United Road.
“Its asset-light business model of partnering with trusted independent contractors combined with our geographic territories will bring new opportunities and new customers to our combined enterprise,” Anderson continued.
United Road explained that TDA’s non-asset based business model means neither TDA nor its independent contracted drivers own or lease any trucks. The company reiterated that transporting heavy equipment such as trucks, utility vehicles, or fire trucks is a specialty business. Class 8 heavy haul vehicles weigh 33,000 pounds or more compared to SUVs at 6,000 pounds.
The company noted TDA’s skilled contractors transport loads as singles, multi-level platform decks or tow-behind booms.
“Team Drive-Away and its affiliates are known, respected providers in the heavy vehicle drive-away space,” United Road executive chairman Kathleen McCann said. “Welcoming TDA to United Road expands our vehicle transport solutions, giving us the ability to move vehicles of every type, from light cars to heavy trucks, always with a commitment to doing so on-time, safely and damage-free.”
Headquartered in Romulus, Mich., United Road provides finished vehicle transport and logistics services from 90 locations throughout the U.S. and Canada. Combined, United Road and Team Drive-Away serve a broad range of customers, including manufacturers, resellers, commercial fleets, municipalities, rental agencies, dealers, auctions, web-based logistics firms and individuals, among others.
United Road has been a holding of The Carlyle Group’s U.S. Equity Opportunity Fund II since 2017.
Team Drive-Away, founded in 2007, was acquired by CID Capital in 2015. TDA and its affiliates, Driveaway USA and Fr8 Management, employ 45 professionals.
For more details, visit www.unitedroad.com and www.teamdriveaway.com.
What typically happens within the confines of a dealership — retailing and servicing vehicles — isn’t solely influencing the values and transactions of stores nowadays. Rather, two firms that monitor dealership buy/sell activities mentioned other factors such as foreign-trade clashes as an element that could impact if activity picks up significant steam to close the year.
Haig Partners and Kerrigan Advisors each recently shared their second-quarter reports, discussing an array of economic factors that might play a role in what a single-point, family-owned store might fetch, as well as how dealer groups might expand their footprints.
“Auto dealers have managed to defy gravity and increase their profits compared to last year,” Haig Partners president Alan Haig said in a news release. “The buy-sell market has suffered this year due to uncertainties in buyers’ minds about tariffs and the overall direction of the economy.
“But the ongoing strength of the auto-retail industry is bringing buyers back to the table, and we believe that transaction activity will rebound to more normal levels in the second half of the year,” Haig continued. “Given the large number of dealerships available for purchase, we think the rest of 2019 and 2020 will present excellent opportunities for groups looking to add scale.”
Despite recession fears, Kerrigan Advisors also expects dealership buy/sell activity to remain strong for the remainder of 2019.
“The global trade war has clearly caused uncertainty in the investment community, leading to a flight to higher quality, less risky assets,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “Auto retail is emerging as one of those asset classes.
“High net worth individuals, family offices and Wall Street investors recognize the counter cyclical measures dealers can take to sustain profitability, even when new car sales turn south,” Kerrigan continued in a news release. “Auto retail’s nimble model makes the industry a highly attractive investment in a time of greater economic uncertainty.”
More details from Haig
As published in the Q2 2019 edition of The Haig Report, the number of dealerships bought and sold in the U.S. decreased by 60% in Q2, compared to an exceptionally busy Q2 2018. The number of dealerships that traded hands fell from 122 to 49.
Haig pointed out acquisition spending in the first two quarters of 2019 by publicly traded auto retailers is less than half of that spent in the same period of 2018. The firm explained this pause in public company investments may be attributed to waiting to see the outcome of trade wars, tariffs and Federal Reserve actions unfolding.
Thanks to a lift in dealership profits so far this year, Haig noted the estimated average blue-sky value per dealership held steady from 2018. At current multiples, dealerships offer a healthy return to buyers and strong prices to sellers.
“There are a large number of dealerships on the market for sale today due to aging owners, increasing complexity of operations, and a perception that smaller dealers will have greater difficulties competing with larger groups in the future,” the firm said.
Other key findings from the Q2 2019 Haig Report include:
• Macroeconomic indicators such as GDP, employment and household incomes, transaction size, low fuel prices and consumer sentiment remain highly favorable for dealers.
• Private dealers are increasing their focus on used vehicles, with volume up 4.1% compared to last year and several clients achieving greater than 2:1 used to new ratio.
• On a combined basis profits have trended upward as the gains in Parts & Service and Finance & Insurance have more than offset the declines in the new car business.
• Floorplan expense has driven almost all of the increase in cost, with a $275 swing in net floorplan cost over the last 3 ½ years. However, the Federal Reserve’s recent 25 basis point rate cut should lead to a $25 lower floorplan expense per vehicle retailed for the average dealer.
• The NADA average private dealership profits for the 12-month period ended Q2 2019 was $1.37M, up 0.6%, reversing three years of declines.
• Most investors now believe autonomous vehicles are unlikely to impact dealers for decades and electric vehicles will remain a niche market.
To download The Haig Report, go to this website.
Additional insights from Kerrigan
Kerrigan Advisors reported this year’s dealership buy/sell market stayed steady and on course for yet another year of more than 200 transactions with 103 completed transactions year-to-date.
According to the just-released Second Quarter 2019 Blue Sky Report by Kerrigan Advisors, a decline in new vehicle sales spurred dealers to turn to their higher margin business segments, resulting in an increase in gross profit and earnings.
“The buy/sell market moved at a slower pace during the second quarter,” Erin Kerrigan said. “Yet even with the second quarter’s decline, 2019 is tracking to be another 200+ transaction year — the sixth consecutive year at this elevated level. Kerrigan Advisors expects transaction activity to remain at today’s elevated pace through the remainder of 2019 and into 2020.”
Kerrigan noted that since 2014, an estimated 1,000 dealers have sold their businesses, representing 12% of the total dealer network. The firm said sellers continue to come to market at a high rate, while the buyer pool grows with new capital seeking investment in auto retail thanks to a diversified and high-margin business model that hedges against an uncertain economy.
This year’s earnings increase, forecasted in Kerrigan Advisors’ prior Blue Sky Reports, highlighted the strength and sustainability of the auto retail business model. Kerrigan mentioned the continued shift to higher margin profit centers such as used-vehicle sales, F&I, and fixed operations also reflects the reported record earnings in the second quarter by public dealer groups. In their quarterly earnings calls, the groups noted their continued success augmenting new vehicle gross profits with record F&I income per vehicle sold.
According to the report, in the first half of the year the number of multi-dealership transactions also declined. The rise in single dealership transactions may reflect “franchise pruning” that many organizations are currently undertaking.
“Both the public groups and large private dealership groups are capitalizing on their ability to jettison underperforming dealerships and redeploy their capital into higher ROI investments in today’s active buy/sell market,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “Among the franchises being acquired, domestics continue to grow their market share because buyers are attracted to their lower blue-sky multiples and higher expected ROI.”
In addition, the report identified the following three trends, which are expected to meaningfully impact the buy/sell market through the remainder of 2019 and into 2020. They included:
— Improvement in dealership earnings steadies blue sky values
— Publics’ stock price appreciation portends future acquisitions
— Lower interest rates support an active buy/sell market
Other highlights from Kerrigan Advisors’ latest report included:
— The buy/sell market moved at a slower pace in the second quarter, with 49 transactions completed.
— The Kerrigan Index is up 37.1% through July. Wall Street investors increasingly believe an auto retail investment is a hedge against a potential recession.
— Average dealership earnings increased 1% over the trailing twelve months ending in June 2019, the first increase in dealership earnings since 2015.
— Despite a decline in new-vehicle sales, dealers grew their higher margin business segments, resulting in an increase in gross profit and earnings.
— Since 2014, fixed operations and used vehicle gross profits have increased 10.8% and 27.6%, respectively. By contrast, new-vehicle gross profits have declined 7.6%.
— Today, fixed operations and used vehicles represent 75.9% of the average dealer’s gross profit, while new vehicles represent just 24.1% of gross profits.
— Domestics continue to increase their share of the buy/sell market at the expense of import non-luxury and import luxury franchises, which both saw their buy/sell market share decline to 22% and 9% respectively in the first half of 2019, the lowest level in five years.
— Rising real estate prices are increasing the total enterprise value of dealerships and more than offsetting any decline in blue sky value.
Kerrigan Advisors also downgraded Nissan and Infiniti high-end multiples as the OEM prioritizes volume over dealer profitability and maintains punitive stair step programs that distort vehicle pricing, creating earnings volatility within the dealer network.
For more details and to preview Kerrigan Advisors report, go to this website.
