As a recap, Q4 saw tremendous activity with the completion of hold-over deals from earlier in the year, and many new transactions started and completed in the quarter. This elevated market activity led to a 24.3% year over year increase in the fourth quarter for Tim Lamb Group.
The continued government support in both the U.S. and Canada (PPP & CEWS primarily) has helped a record number of dealers boost profitability in 2020 with many achieving all-time net profits. Armed with strong balance sheets, cashflow and extended credit from their lenders, we continue to see a in-flow of new buyers entering into the market sourcing acquisitions. Conversely, this has led again to a dramatic decrease in dealers looking to divest. We have had many engaged clients postpone listing their stores between on average six-to-twelve months.
Our outlook in Q1/Q2 is a continued shortage of inventory for franchised dealerships. Should the lack of inventory persist, we expect the blue-sky values to continue to be elevated and a continued sellers’ market through the first half of 2021. Given the decrease in Tier one franchises & locations, large dealers groups have amended their ideals in becoming more flexible on brands & locations. The function of now entertaining non-metro and Tier two/three brands is likely to take advantage of all-time low interest rates and deploy capital for a return. As for Real Estate, we have seen an equal number of buyers looking to either purchase outright, or engage in longer term leases subject to agreeable term/cap-rate. Cap rates in Canada are consistently ranging from sub-five percent in major metro markets up to eight percent in rural markets.
The key drivers for all buyers continue to be brand and then location. The most requested brands continue to be domestic, Tier one import brands (Honda, Toyota, and Subaru) and Luxury. Metro and near metro locations are in significant demand across both markets.
In summary, the continued surge of interest to acquire, a dramatic reduction in selling dealers pushed by the low interest & government support tail-winds, has further perpetuated the shortage in supply and elevated blue-sky values.
Tim Lamb Group is the Largest Automotive Buy-Sell broker in North America, and since 2006, we have assisted in over 1000 transactions totalling more than $10bn.