Dealership Newsmaker Q&A: Alan Haig

Jan. 1, 2020
Alan Haig is a managing director at The Presidio Group, a San Francisco-based personal and corporate financial services firm.
Alan Haig is a managing director at The Presidio Group, a San Francisco-based personal and corporate financial services firm. The company recently released its Automotive Retail M&A Report for 2011, which provides an update on merger and acquisition activity among auto dealerships. After a significant slump in 2009 (when the value of public retailer acquisitions fell to just $28 million, last year saw a 140 percent increase to $512 million in acquisitions. He discussed some of these trends with Aftermarket Business World.

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How has the rebound in sales impacted M&A activity? More sales would obviously drive up the price of available dealerships.

Higher volume is usually accompanied by higher profits, so owners who are interested in exiting are saying to themselves, 'The profitability of my dealership is very strong right now,' and they don't feel they necessarily have to wait for the economic recovery to be full and complete to get a strong value from their store today.

From a buyer's perspective, since we're still two or three million units away from the normal level of sales, buyers perceive there to be a meaningful amount of upside in the transactions they are looking at. They can buy a store today and expect it to make more tomorrow. So the multiple they are applying to current earnings of dealerships is also strong. When profits are high and multiples are strong, then goodwill value is also very strong. And that's what we're seeing in the market.

The domestic nameplates are rebounding as potential acquisition targets. What factors are driving that?

I think there are three things that have happened for domestics. One is that product quality is much improved, both from a design perspective and in terms of the reliability of the vehicles. The second thing that's happened is that during the recession, the U.S. OEMs eliminated a few thousand dealerships around the country. The result is business that those dealers were conducting has been spread among the remaining dealers. So those dealers have had not only a lift in sales from the overall economic recovery, but also a further lift in sales and profits due to reduction in competition in their markets. And third, all this has happened for the domestics just as their competitors, particularly Toyota and Honda, were showing some weakness due to quality issues and the tsunami.

The report notes that some owners who may be interested in exiting the market are still holding out and waiting to sell. Why?

Current profits are at an all-time high according to NADA, and, rightly or wrongly, they don’t see any negative news on the horizon that would cause them to want to sell sooner. They also believe their stores might be worth more in the future. We're not sure how that will turn out for some dealers. As we get closer to the traditional full retail volume, it's not clear to  me that buyers will put the same multiples on earnings that they are now. And if many sellers decide to enter the marketplace at the same time, then you get his supply/demand imbalance, and that could cause pricing to fall.

What else could potentially derail the growth in M&A among dealerships?

If interest rates go up, that makes it more costly to finance acquisitions, and it could have a negative impact on the overall market for consumers buying cars. It would cost them more to finance the purchase of a car. If there are any recalls that happen to specific brands, that could have a negative impact for the value of those brands. If there are any economic shocks, if there is an oil crisis due to something like an attack on Iran, that might have an adverse affect on the M&A market. Anything that creates uncertainty in the minds of consumers has the same effect on potential buyers of these dealerships.

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