Automotive News

Q&A: Dealership mergers & acquisitions

Q&A: Dealership mergers & acquisitions
Written by Publishing team

Dealerships have traded hands at a record level in 2021 and also commanded all-time-high prices. Is this trend primed to carry over into 2022? Will certain brands generate higher valuations than others? And will more United States-based mega-groups enter the Canadian market? Read on as industry experts from BDO, Templeton Marsh and DSMA answer these and other questions and provide valuable insights and perspectives.

Q: 2021 was a big year for buy-sell deals, and dealership multiples have grown as a result of higher profits. Where are dealership valuations headed in 2022?

Cameron Percy, BDO: Heightened multiples in the industry are primarily driven by availability and low cost of debt capital, willingness of banks to finance goodwill in transactions and a shrinking pool of targets that fit properly into each buyer’s strategy. Furthermore, significant profits and material increases in real-estate values ​​have left buyers with significant amounts of equity capital to deploy. Underlying all of that, of course, is the business case for consolidation in the industry (ie scaling fixed costs, purchasing power, consumer brand recognition, etc.).
Notwithstanding interest-rate increases from the Bank of Canada, I don’t see these forces shifting materially in 2022, so I think valuations will continue where we’ve seen them during the past year.

Samir Akhavan, Templeton Marsh: Ratings will remain strong. Dealers are optimistic and expect the inventory issues they’ve faced during the last 18 months, related to microchip shortages, will improve in 2022. As a result of both stabilizing inventory and record profits, buyers are aggressively looking to deploy their capital.

Farid Ahmad, DSMA: Overall, multiples remain steady. However, with increased profitability and land values, we are seeing much higher walk-away checks. What’s interesting is that underperforming dealerships with strong brands in large markets are seeing very high multiples.

As for where multiple-values ​​are headed, the answer depends on a few issues, such as interest rates, inventory-supply issues, the used-car market and, of course, COVID-19. If no major economic changes occur and the supply-chain issues get resolved soon, you could see an increase in multiples, due to pent-up demand for dealerships. But if the economy takes a nosedive, then all bets are off.

About the author

Publishing team