TLG Q1-2020

First and foremost, we would like to extend our sincerest best wishes to the entire dealer network, your families, friends, and of course, your valued staff/family.  

 

In the first quarter, in both Canada and the U.S, we experienced a continued divestiture of underperforming and non-primary market dealerships from larger dealer groups in both countries.   Larger dealer groups are continuing to narrow their acquisition focus to specific brands and smaller geographical areas.  With this more focused approach, we have also seen a drop in acquisition size (2.7 from 3.3 in 2018) as well as a total buy/sell drop of 13% year over year (U.S. data).  This shift to smaller acquisitions has presented more active buyers & offers for single rooftops, whereas larger groups (5+) had fewer buyers/offers.  Smaller dealer groups and single-point dealers have become a larger proportion of our buyers portfolio as they recognize that scaling has become increasingly more relevant to future growth (grow or go).   Overall, the entire market was fairly balanced with buyers and sellers, which was consistent with our experiences in both Q3 and Q4 of 2019.

 

Since the on-set of Covid-19 and the continued restrictions from the governments, we have experienced a virtual freeze on most in-progress buy-sells as both parties wait to gather more information and to have a clearer understanding of any changes in the market.   Of our 20+ transactions that were set to close in Q1, we did not experience any cancellations, and closed on almost every transaction with a small percentage extending closing dates.   There have been, however, some recent cancellations and most notably the $1BN Asbury/Park Place acquisition announced in December that was cancelled last week resulting in a $10M breakup fee.  

 

As almost the entire populations & economies in Canada and the U.S. have been paused, we anticipate that there will be no impact on brand multiples as the market will likely un-pause returning to that continued balanced market (buyers & sellers).  It is important to note that although we don't anticipate a change in multiples, they are calculated as an average of prior years and current years adjusted performance- the impact of Covid-19 will be a relatively small percentage of the dealers 2020 decline in performance.

 

Our phones are ringing- but it is not who you think.  The vast majority of calls we have been receiving are from very well-capitalized dealers/dealer groups looking to acquire stores as they view this as a huge opportunity to acquire stores from less well-capitalized dealers.  As there is continuously evolving information and support for the dealer-body released daily, most potential sellers are sitting on the side-lines to see how/if they can weather the storm.  In our experiences, smaller/single point dealers who may be considering selling are more inclined to ride this out and restore their business to optimize their goodwill.  Though, as the Covid-19 restrictions continue to tighten and extend in duration, there will likely be a continued growth in dealers that will be forced to sell.

 

In our prediction, we see the Canadian Auto market being somewhat restored to normal levels by Q4 and, as mentioned by RBC, an anticipated 25% decline in new vehicles sales year over year.   In Q2-2020, we expect a drastic reduction in dealership buy-sells activity unless there are advances in Covid-19 treatments, cures or an eminent end to isolation.

 

 

Tim Lamb Group is the Largest Automotive Buy-Sell broker in North America, and since 2006, we have assisted in over 1000 transactions totalling in excess of $10bn.