As a dealership owner, do you wonder why other owners sell their businesses? It’s a question I’m asked frequently. Based on Dealer Solutions extensive client database, here are the top 5 reasons business owners sell their dealerships:
- No succession plan or a successor is denied approval by manufacturer. This happens more times than not, especially the successor denied approval. We are seeing that the OEM’s are looking for new and more engaged individuals than passing the same mentality and/or approach the family business has done for years.
- Costly investments of maintaining manufacturer facility image standards and the length of time to recover from the investment. Roughly every ten years the manufacturer is looking for a new look or up-date, with average costs to the Dealer ranging from the low end of $200/sq. ft to the higher end of $300/sq. ft. The average profitable store is still looking at 10+ years to recoup the investment.
- Constant manufacturer pressure for improved performance notwithstanding the market pressures on margins. The closer you are to a metro area the lower the margins, due to the tight battle of limited market share and more brands per sq KM, which is why I am seeing more dealers raise their hands to get out, or buy in a more rural areas because they still enjoy the day-to-day.
- Dealers re-evaluating personal life goals; i.e. stay in the business for another seven-year cycle or exit today. I wish I had a dollar for every time a dealer said to me “I should have got out last year when you spoke to me about the market and multiples”. We don’t have a crystal ball, if you are thinking about selling you are probably closer than you think. Sometimes your gut is more in tune than your mind.
- Taking advantage of current multiples in the market versus uncertainty of the future. Today, when we do a valuation, we are only saying it is valid for 60 days. If a dealer doesn’t act within the 60 days, we can’t guarantee that value will hold because of the fluctuating market. Our industry is changing at light speed and there is a great deal of hesitation moving forward. We’ve already seen adjustments to the multiples for several brands creating great opportunities for those looking to buy a dealership. For other brands multiples are still very strong but are showing signs of weakening.
To discuss this article or any aspect of the buy/sell process, please feel free to reach out to me at any time at [email protected].
