Mergers and Acquisitions

Outside capital among 3 trends fueling store buy/sell activity

IRVINE, Calif. - 

Don’t be surprised if some of the stores along “car row” in your market undergo a major ownership change some time before the end of the year.

According to the latest Blue Sky Report released this week, Kerrigan Advisors is expecting 2018 to be an active year for dealership buy/sells with an increasing number of buyers and sellers coming to market with the volume of transactions increasing as the calendar turns.

The report identified three key trends shaping 2018 and into 2019, including:

— Private dealers partner with outside capital to finance growth plans

— Public dealership groups become increasingly acquisitive

— Buyers focus on current performance rather than pro forma when pricing blue sky

“Kerrigan Advisors sees movement toward increased consolidation in auto retail, as well as continued increase in capital investment from outside the industry. Buyers are excited by the long-term opportunity and healthy pace of the current market, and see it as a chance to increase investment,” said Erin Kerrigan, managing director of Kerrigan Advisors.

“At the same time, we expect this shift toward economies of scale, coupled by current high values, to entice smaller dealership groups to sell as part of their estate planning,” Kerrigan continued.

In the report — — Kerrigan Advisors went into more detail about why and how outside capital is working its way into the franchised dealer space. The firm believes that the trend began to surface noticeably when Warren Buffet and Berkshire Hathaway acquired the Van Tuyl Group in 2015.

Firm experts said, “a growing pool of professionally managed and invested capital is looking to follow Buffet’s lead and invest in auto retail. The Buffet acquisition not only served as an endorsement of auto retail, it also showed many that such an investment could be done.

“Previously, acquiring and investing in auto dealerships seemed nearly impossible for outside capital,” the firm continued in its report. “Auto retail had a perceived impenetrable barrier to entry. The challenge for most of these private investors is how to invest and with whom.

“Traditionally, auto dealers were disinterested in bringing on equity partners, believing a partnership would overly limit their control of their business. The negatives simply outweighed the positives,” the firm went on to say. “However, as growth through acquisition has increasingly become an imperative to future success, a rising number of dealers are seeking capital partners to fund their acquisition plans.”

With those trends forming a backdrop, Kerrigan Advisors highlighted that during the first quarter the auto dealership buy/sell market continued its high level of activity, fueled by a healthy economy and an increased pool of sellers reacting to auto retail’s future.

Fresh investment and capital from new players, including international buyers, kept the Q1 pace at a high level — though down from last year’s peak, according to The Blue Sky Report.

Kerrigan Advisors explained the continued steady pace of a 17 million SAAR, compounded by pressure on dealership profits and emerging changes to the dealership business model, have essentially defined the market into two camps, which include:

— Buyers who have outside capital or resources to embrace and drive change

— Sellers who are increasingly reliant on OEM incentives for profitability and are concerned about how coming changes will impact generational succession plans

Among the most noteworthy transactions underscoring this trend is AutoCanada’s acquisition of Kerrigan Advisors’ client Grossinger Automotive Group. Kerrigan pointed out the Grossinger transaction was the largest transaction ever made in auto retail by a non-U.S. company.

“As with 2017, we’re continuing to see the economic benefits of consolidation, and how that’s attracting new buyers to auto retail,” Erin Kerrigan said. “There is also a rising interest by many dealers in selling. In particular, smaller dealership groups, who are struggling to maximize profit through economies of scale, are concerned about the viability of their family business for future generations.

“These dealers would rather sell now when values are high then risk the unknown,” she added.

Kerrigan Advisors acknowledged this cautious approach to unknown factors also has changed the way buyers are approaching the market. While the past saw them base valuations on future potential earnings, today’s focus is on current performance.

“In the last decade, buyers mostly priced acquisitions based on expected pro forma earnings post-transaction,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “With industry sales slowing, however, many are now unwilling to base their purchase price on what a dealership could do. They are focused on what the dealership is currently doing in terms of profit. That is what drives value today.”

Blue Sky Report data and analysis from the June quarterly report also included:

— Actual transactions declined quarter over quarter, but the number of franchises represented in each transaction increased by 45 percent. As a result, the total number of franchises sold in the quarter remained on pace with 2017.

— Multi-dealership transaction activity increased 27 percent in the first quarter of 2018, compared to 2017. Kerrigan Advisors expects the pace of multi- dealership transactions to remain high in 2018.

— Among franchises being acquired, domestic franchises (44 percent) maintained their leading position with the highest buy/sell market share, followed by import non-luxury franchises (40 percent) and import luxury franchises (16 percent).

— Import franchises had the highest turnover rate — a reflection of high buyer demand and low franchise supply. The supply/demand imbalance of many import franchises also results in higher blue sky values and multiples.

— U.S. public auto retailers’ U.S. acquisition spending increased 62 percent in the first quarter of 2018, compared to Q1 2017. At this spending level, public retailers are tracking toward over $1.5 billion of U.S. acquisition spending in 2018, a level that would exceed 2014’s peak level.

— Private buyers, however, continue to dominate buy/sell markets with almost 80 percent of franchises. Private buyers are accessing debt and equity capital to finance their growth and compete with the publics for sizable acquisitions.

The Blue Sky Report published by Kerrigan Advisors is a quarterly report on dealership M&A activity, as well as franchise values. It includes analysis of all transaction activity for the quarter, and lays out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments.

Ken Garff, Rairdon acquire Ford, Honda dealerships out west

SALT LAKE CITY and MARYSVILLE, Wash. - 

Ken Garff Automotive Group now owns Utah’s former Henry Day Ford dealership, and further west Rairdon Automotive Group recently acquired a Honda store in Marysville, Wash., from the O'Brien Auto Group.

Ken Garff Automotive announced Monday that the Day family is departing from the automotive business after 84- years.

“We wholeheartedly welcome the Henry Day dealership, its employees and customers into the Ken Garff family,” Garff Enterprises chief executive officer John Garff said in a news release. “We know each other well, and our businesses complement each other perfectly.”

According to Garff, there aren’t any arrangements to make staffing cuts at the newly acquired store. “We have no plans for a reduction in force,” he explained. “Instead, we see growth opportunities as we combine strengths and services of both companies to benefit our customers.”

In addition to changing the former Henry Day Ford dealership’s name to Ken Garff West Valley Ford, the store will supply costumers with increased vehicle options, as well as offer GarffCare and its AdvantageCare pre-paid vehicle maintenance package.

“We are excited to join teams and continue to bring excellent service to our customers,” said Ken Garff West Valley Ford general manager Winston Bennion. “The West Valley community is wonderful, and we will continue to deliver the excellent service they have received from Henry Day's team.

“Our teams are all still in place, so customers can continue receiving the superior service they've always expected,” said Bennion.

Meanwhile, the Washington State dealership that Rairdon Automotive purchased from O'Brien Auto at the end of May is the group’s 11th location.

Now named Rairdon's Honda of Marysville, the newly acquired store is also the group’s third Honda dealership, joining Rairdon Automotive’s Honda of Burien and Honda of Sumner.

“We founded our company 25 years ago in the Smokey Point/Marysville market,” said Greg Rairdon, founder and CEO of Rairdon Automotive Group. “It’s a great opportunity for us to add our third Honda dealership where we got our start.”

Haig Partners facilitates store acquisitions by Asbury and Jim Ellis

ATLANTA - 

Vehicles aren’t the only industry merchandise that recently rolled over the curb in the Atlanta market.

Haig Partners represented Ken Page and Scott Smith, principals of Automotive Associates of Atlanta (AAA), in the sale of two of their six Atlanta dealerships to Asbury Automotive Group and Jim Ellis Automotive Group. 

Asbury has acquired Toyota of Union City, and Jim Ellis Automotive has acquired Cobb County Kia.

“We are excited to bring Toyota of Union City into our Nalley platform in metro Atlanta,” Asbury chief executive officer David Hult said. “We will be able to take advantage of Nalley’s strong market presence, its leadership and great people in the stores that really generate great returns.

And we have a high-performing store in Nalley Honda just across the street,” Hult added.

Smith explained why he made this move.

“We have been very proud to represent Kia and Toyota in the Kennesaw and Union City communities,” Smith said. “These transactions have allowed me to refinance and fund my acquisition of the remaining Atlanta locations from my long-time partner and good friend Kenny (Page).”

Page Automotive Group and Automotive Associates of Atlanta will maintain ownership of dealerships in Florida, Maryland and Georgia.

“Haig Partners was able show us the value of approaching multiple targeted buyers to generate the value required to make this dream come true,” Page said. “Haig Partners found us great partners that will provide our employees with new opportunities and will represent the local markets well.

“Both Scott and I believe the team at Haig Partners was highly instrumental in managing the negotiation process and bringing the transactions to a conclusion. I am very happy for Scott in his new endeavor and look back on our years as partners with great fondness.” 

Nate Klebacha and Kevin Nill of Haig Partners were the financial advisers to Page abd Smith.  Stephen Dietrich of Holland and Knight served as legal counsel for the Cobb County Kia transaction, and Robert Bass of Bass Sox Mercer served as legal counsel for the Toyota of Union City transaction.

“Scott and Kenny asked us to help simplify their Atlanta operations, and we presented them with multiple solutions. Ultimately their choice to sell the Toyota and Kia locations was based upon what was best for their employees and the markets they served.  We would like to congratulate Jim Ellis and Asbury for acquiring dealerships in the robust Atlanta market,” Klebacha said.

Nill added, “Unlike many situations where a buyer acquires all of the dealerships, this opportunity made more sense to identify and execute transactions with separate buyers.  While adding complexity, it generated the funds necessary for Scott to acquire the group’s Atlanta Nissan dealerships.”

The team at Haig Partners has been involved in the purchase or sale of 14 Atlanta area dealerships and more than 280 dealerships nationwide.

Asbury now has 81 stores representing 29 brands in nine states.

Jim Ellis Automotive Group is an Atlanta-based dealership group with 14 stores representing 13 different franchises.

Dealer Solutions North America expands from Canada into 6 states

DETROIT - 

One of Canada’s largest retail automotive M&A consulting firms is looking to gain more business in the United States, choosing a former Audi and Penske executive to lead a growing footprint into six states.

Dealer Solutions North America, specialists in advising on and providing strategies for buying and selling dealerships, has announced its expansion into the U.S.

Leading the offices in the U.S. will be auto industry veteran Russell Hill, who has more than 50 years of experience across multiple sectors of the business. In prior roles, Hill led sales and dealer operations for Audi of America, oversaw a network of dealers for Penske Automotive Group as vice president of northern California and returned to Detroit as vice president of operations for Penske.

Most recently, Hill has launched several successful auto-industry businesses and consultancies.

“We are exclusively dedicated to assisting dealers and investors interested in making the most out of today’s robust market, which is poised for a dramatic valuation shift,” said Hill, who will serve as chief operations officer for Dealer Solutions North America.

“Tax reforms, favorable banking and continued investment by both OEMs and high-tech firms are attracting a new level of domestic and international interest; we expect these factors will continue to fuel increased demand for dealerships among well-funded investors,” he went on to say.

The U.S. offices of Dealer Solutions are in metro Detroit, with consultant offices in Florida, Georgia, Virginia, North Carolina, Connecticut and Michigan.

Founded in 2012 by Farid Ahmad, a career automotive professional with extensive experience in retail, brand and real estate in Europe and North America, Dealer Solutions has advised on the successful closing of more than 150 dealerships amounting to more than $3 billion in value, with nearly 50 transactions pending. Within the past six years, the privately-held company, headquartered in Toronto, has become one of Canada’s largest retail automotive M&A consulting firms.

Dealer Solutions provides full-service, step-by-step guidance and support to acquiring or selling a dealership. The company boasts a proprietary appraisal system that can allow clients to understand the market value and potential for their dealership.

To date, Dealer Solutions has conducted nearly 500 dealership appraisals. And its extensive network of personal relationships can allow buyers and sellers to tap into a wide-ranging group of s across Canada and the U.S.

The company's expansion into the U.S. is the result of two years of exhaustive study, with the first new office opening in metro Detroit in late 2017, and dealership listings within the same period.

“Our Canadian-U.S. group is diversified and we are on course for continued growth, which combined with our proprietary process and ability to seamlessly bring buyers and sellers together, allows us to provide more value to clients in both countries,” said Ahmad, who serves as chief executive officer of Dealer Solutions North America.

“Our team of merger and acquisition experts collectively hold more than 30 decades of combined experience in the automotive industry, and we’re thrilled to be in the U.S. market,” Ahmad continued.

To learn more about Dealer Solutions, .

 

US auto group buys Sonic store in Houston; Canadian group closes on large deal

HOUSTON and OTTAWA - 

Along with Doggett Auto Group’s acquisition of Houston's large Lone Star Ford automotive dealership, the industry has also seen a sizable en bloc purchase of 10 Canadian stores north of the border this week.

Leslie Doggett Industries' affiliate the Doggett Auto Group has acquired Houston's Lone Star Ford store from Sonic Automotive. The heavy equipment dealership group announced Thursday that it purchased the Ford dealership for an undisclosed amount, effective on Tuesday.

At the end of July, Doggett confirmed it will move the store to a lot that is located adjacent to the groups’ John Deere Construction and Forestry headquarters.

“Doggett's outstanding reputation as the leader in customer service and support in the commercial 18-wheeler, industrial and construction equipment industries is going to translate to success in the Ford business,” auto group head Tony Gracely said in a news release. “Doggett has a long history of acquiring units of large public companies and dramatically improving and growing those businesses with their highly-professional and family-oriented approach.”

In addition to 17 John Deere construction and forestry equipment dealerships, Doggett operates four freightliner on-highway truck and vocational truck dealerships, four Link-Belt Cranes dealerships and seven Toyota industrial equipment dealerships across Houston.

The company said “Doggett has become the largest dealership group in North America for three separate first-tiers in the construction equipment and industrial industries.”

Meanwhile, over in Canada, Mierins Automotive Group has agreed to sell 10 of its dealerships and two collision centers to Alpha Auto Group, based in Toronto.

In addition to group co-presidents Lisa Mierins and Arnie Mierins, who will continue holding their roles for a transition period, Mierins Automotive Group also announced that each employee on board prior to the recent acquisition will be offered positions with Alpha Auto.

“Our employees are our family and our communities are our home,” Arnie Mierins and Lisa Mierins stated in the news release. “It means a lot to us to have found a buyer who shares our values and will continue the legacy that our father and our family established over sixty years ago.”

A total 550 employees have had the opportunity to able to retain any existing seniority levels and benefits, according to Mierins Automotive Group.

Alpha Auto Group’s 12 newly purchased facilities are located in cities: Ottawa, Kingston and Brockville.

The new set of stores represent Acura, BMW, Honda, Lexus, MINI, Subaru and Toyota brands.

Furthermore, “The name Mierins Automotive Group will continue to be the holding company brand of the acquired dealerships as well as potential future acquisitions,” the group explained a news release.

Investment group led by CFAA owner acquires ComplyNet

COLUMBUS, Ohio - 

One auction owner is putting compliance where her checkbook resides.

According to a news release sent to AuSM on Tuesday, an investment group headed by Alexis Jacobs, owner of the Columbus Fair Auto Auction, has acquired ComplyNet, a 25-year-old compliance and risk management consultancy focused on dealers and auto auctions.

The auction community and dealer community alike have benefitted from ComplyNet’s laser focus on the exposures unique to the automotive industries.

“As a third party to the commercial consignor, the auction’s responsibilities are extensive and significant. Columbus Fair has utilized ComplyNet’s services for six years, allowing us to respond to consignors with confidence and to leverage our combined efforts with our garage carrier. When you become a preferred risk, the savings are considerable,” Jacobs said.

“We not only have the most comprehensive approach to risk mitigation, we have an attorney, Adam Crowell, serving as president of the company,” Jacobs continued.

Crowell offered his perspective on compliance, too.

“As regulators continue to expand their focus in the automobile industry — both wholesale and retail — efforts to maintain a compliant operation have become more complicated.  An outsourced compliance service is one of those solutions that makes more and more sense.  Relying solely on someone internally is not a consistent solution,” according to Crowell, who is the managing member of ComplyNet.

“I intend to continue to develop the technical assets while enhancing the library of automotive content,” he added.

ComplyNet performs on-site and online services for automotive customers in 34 states, enhancing compliance and reducing subscribers’ risk.

 “This is a banner day for ComplyNet,” said Phil Troy, the founder of the company, who will continue to serve as the advisory director. “My vision was to provide a risk management and compliance solution tailored not only to the industry, but to the management style of each business. 

“This new investment group brings deep roots in the automobile industry, great management disciplines, and the ability to invest in new solutions,” Troy went on to say.

CDK purchases Progressus Media to grow advertising business

HOFFMAN ESTATES, Ill. - 

CDK Global has acquired Progressus Media to grow the technology and capabilities of its CDK Advertising business.

The company recently announced that the transaction closed for an undisclosed amount earlier this month, and it has also appointed Jen Cole to head CDK Advertising as vice president and general manager.

“We are excited to bring the Progressus Media team into the CDK family,” Cole said in a news release. “Our data-driven solutions, which help to put the right targeted messages in front of consumers at the right time in their shopping journey, combined with Progressus’ advanced technical capabilities, mobile conversion focus and subject-matter expertise, uniquely position us to provide competitive solutions in this rapidly changing market.”

CDK said the addition of team members, technology and products from Progressus can help advance CDK’s growth in social media channels.

Throughout the next several weeks, the Progressus Media team will work on fully integrating into the CDK Advertising business, according to CDK.

The Progressus Media team will remain based at their current office located in downtown Chicago.

Marketing activation platform joins Partner Program

Meanwhile, in other recent CDK news, 1-2-1 Mobile announced Monday that it is the latest company to join the CDK Global Partner Program.

“We are thrilled to join the CDK Global Partner Program,” 1-2-1 Mobile chief executive officer Alon Omer said in a news release announcing the new partnership. “This partnership gives us the opportunity to bring the power of our innovative marketing activation platform to thousands of automotive dealerships nationwide.

“1-2-1 Mobile has already partnered with top-tier automotive groups to transform their marketing campaigns into interactive, mobile-specific engagement tools that provide unprecedented marketing intelligence and ROI,” Omer continued.

1-2-1 Mobile uses engaged customer's mobile phone number to track their journey with an image-based mobile coupon, as well as provide dealers with marketing intelligence per customer.

Marketing intelligence that can be delivered by 1-2-1 Mobile includes information such as the marketing channel, specific promotion and customer's mobile phone number, as well as the location the coupon was redeemed.

Carvana acquires pioneer of 360-degree used-vehicle digital tours

PHOENIX - 

Since Carvana retails used vehicles online, evidently the company wants to make sure its inventory is highlighted in one of the most state-of-the-art ways possible.

According to an announcement distributed on Tuesday, Carvana has acquired fellow technology innovator Car360, accelerating Carvana’s 360-degree photo technology capabilities with 3D computer vision and augmented reality (AR).

More than five years ago, Carvana insisted that Car360 pioneered the 360-degree used vehicle digital tour, showcasing each car’s features and imperfections in high resolution, all powered by proprietary technology and patented photo studios. Officials explained Car360 has taken the concept mobile, enabling app-based photo capture and even more immersive viewing capabilities.

“Carvana and Car360 both believe in the power of putting amazing technology in the hands of the customer so they can make one of the largest purchase decisions of their life with transparency and confidence,” said Ernie Garcia, founder and chief executive officer of Carvana.

“Bringing the Car360 team into the fold, we add even more entrepreneurial strength in computer vision, AR and app-based photo capture,” Garcia continued. “This technology unlocks a number of exciting capabilities that will further our mission to change the way people buy cars.”

An early iteration of Car360 launched in 2012 as a 360-degree panoramic video app called Cycloramic, and at one point became the No. 1 downloaded app on the Apple App Store with more than 20 million downloads.

In 2013, the wildly successful app caught the attention of Mark Cuban on Shark Tank, leading to an initial investment that eventually increased as part of a $3.55 million Series A financing round for Car360 in 2017.

“We have long admired Carvana’s pioneering 360 work, and couldn’t be more excited to team up,” said Bruno Francois, founder of Car360. “Focusing our technology and innovation within the disruptive force Carvana has established in the industry means we can realize the full potential of our technology more quickly, and at significant scale — we’re looking forward to seeing what’s possible, together.”

As one of the first commercially available uses of 3D computer vision, machine learning and AR technology for the automotive industry, Car360 joins Carvana at an exciting time of hyper-growth, when more and more consumers are ditching the dealership to buy online.

“The Car360 mission is to change the way companies capture and tell a car’s story, which aligns perfectly with Carvana’s mission to change the way people buy cars,” said John Hanger, chief executive officer of Car360.

The full Car360 team will transition to Carvana, including Francois, Hanger and chief computer vision scientist Grant Schindler.

Nissan and SiriusXM extend agreement through 2023

NEW YORK - 

Nissan dealers can continue to highlight the benefits of satellite radio in many of the automaker’s vehicles — including certified pre-owned models.

On Wednesday, SiriusXM announced an agreement with Nissan North America that extends the ongoing relationship between the two companies for five more years and through the 2023 model year. Nissan and INFINITI customers will continue to get a three-month introductory SiriusXM All Access subscription — SiriusXM’s most expansive programming package, which includes access to the SiriusXM mobile app — with the purchase of equipped vehicles.

Customers purchasing properly equipped Nissan and INFINITI vehicles will also receive a three-month subscription to the SiriusXM Traffic and SiriusXM Travel Link infotainment services. Certain models and trim levels will include extended infotainment services subscriptions.

Customers who purchase Nissan and INFINITI certified pre-owned vehicles will also continue to receive a three-month introductory subscription to SiriusXM All Access.

SiriusXM Traffic can help drivers avoid congestion before they reach it with detailed information on traffic speed, accidents, construction, road closures and more. SiriusXM Travel Link can deliver timely and helpful information to drivers and passengers including weather, fuel prices, sports scores, movie listings and stock prices.

Additionally, SiriusXM will be standard on all model year 2019 and model year 2020 Nissan Altima and Titan vehicles. 

“We are thrilled to extend our long-term relationship with Nissan North America,” said Christopher Lam, senior vice president and general manager of automotive partnerships for SiriusXM.

“Nissan has always been committed to staying on the leading edge of automotive technology and their dedication to reliability and design has established their vehicles among the most popular on the road today,” Lam continued. “We are proud to continue providing both Nissan and Infiniti customers with the benefit of SiriusXM's exceptional audio entertainment and infotainment services."

Group 1 grows Brazil operations with Toyota market acquisition, Honda store expansion

HOUSTON - 

Group 1 Automotive announced Monday that the company has gained new Toyota sales territory in São Paulo, Brazil and will also relocate one of its top Honda dealerships in the area.

Group 1 built its newly opened T-Drive Toyota Alphaville dealership after purchasing selected assets of the Toyota Alpha Trevo Automoveis store in the western São Paulo suburb of Alphaville.

The new store is Group 1’s fourth Toyota dealership in Brazil and is expected to generate $45 million in annualized revenues.

“Toyota is the largest brand partner for our company overall and we are excited to significantly expand our relationship in Brazil,” Group 1 president and chief executive officer Earl Hesterberg said in a news release.

“We see great growth potential for our existing stores and the new opportunities associated with this acquisition will provide a large Toyota operating footprint for us throughout Brazil's largest city," Hesterberg continued.

Group 1 was recently awarded several additional new Toyota points of representation, according to the company.

Among the four dealerships in the greater São Paulo metropolitan area operated by Group 1, the company said it plans to relocate its Honda dealership located in the suburb of São Bernardo do Campo to expand substantially.

“We have enjoyed great success with the Honda brand in Brazil, even during the severe market downturn,” Hesterberg explained. “The relocation of Honda São Bernardo do Campo to a much larger facility with freeway visibility will likely enable us to double our revenue for this dealership in a fairly short period of time.”

Group 1 operates a total of 17 dealerships in Brazil, which includes BMW, Honda, Jaguar, Land Rover, MINI, Mercedes-Benz and Toyota.

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