They're coming from investment banking and the beverage industry, real estate and manufacturing. What do they have in common? After making their money in other industries, they're now snapping up or jockeying to buy U.S. auto dealerships.
While the vast majority of deals still involve industry insiders, unconventional buyers -- those who made their money outside automotive retailing -- are a growing influence in the dealership-acquisition market. Some established dealers and dealership brokers say interest from buyers outside the car industry is increasing as dealership profitability rises.
Craig Monaghan, CEO of Asbury Automotive Group Inc., the nation's seventh-largest retailer in terms of 2012 new-vehicle retail sales units, says he began seeing an uptick in interest from unconventional buyers in mid-2012.
"More people are beginning to understand that automotive retail is a very attractive business model and produces a very nice cash flow," says Monaghan, who is active in the market looking for his own dealerships to buy. "We've demonstrated it's also resilient. That's the kind of thing that would appeal to those buyers because what else are they going to do with their money? Put it in a bank, and they're going to earn one-tenth of one percent."
While no hard data are available on the deals that involve unconventional buyers, experts say the numbers are low but growing. They typically involve individual buyers. While there has been buzz for years about interest from private equity groups, few deals have materialized. But brokers expect private equity to have a growing influence, too.
Alan Haig, head of automotive services for Presidio Group, a San Francisco financial services company that brokers dealership sales, estimates that 5 percent of dealerships change hands every year, including those that are sold or handed down within families. That means almost 900 stores would have turned over in 2012.
Looking at Mercedes-Benz and excluding dealerships already owned by public dealership groups, that formula would translate to about 16 stores changing hands in 2012. And at least two were bought last year by buyers from outside the industry, Haig noted.
Sheldon Sandler, founder of Bel Air Partners in Hopewell, N.J., estimates that fewer than 20 deals with outside buyers exclusively have been completed in the past two years, "but it's a growing phenomenon."
The interest from unconventional buyers means more competition for dealerships. That could drive up dealership values, particularly in markets in which a newcomer is looking for several stores. But newcomers have to clear a high bar to get manufacturer approval for dealership purchases.