With the Bechtel family's majority purchase of Morrie's Automotive Group in Minneapolis last week, a new kind of buyer emerges in the dealership acquisition market.
Family offices -- firms set up to invest the money of wealthy families -- are outside buyers that may appeal to both selling dealers and the automakers that must approve the acquisition.
"I don't see these kinds of buyers displacing the public companies, but I do see them as a very attractive supplement," said Alan Haig, president of Haig Partners, a buy-sell advisory firm in Fort Lauderdale, Fla. "There is an increasing number of very wealthy families in this country that are deciding to make direct investment in other companies rather than investing in the stock market."
Haig advised Fremont Private Holdings, which is buying out Morrie Wagener's share of his 11-store group.
Scott Earthy, managing partner at Fremont, which invests for the family behind construction and engineering giant Bechtel Corp., said family offices "can be a tremendous option because [they] have more flexibility in their capital." That flexibility can make them a good option for dealers interested in selling their stores.
Family offices have ready access to large amounts of capital. They generally have open-ended investment timelines vs. the shorter, defined timelines of private-equity firms. Many want to work with established management, potentially allaying concerns about their lack of industry experience. They have little exposure to auto retail, so automakers needn't worry about an overconcentration of stores with a single buyer.
Wagener, his family and Morrie's Automotive CEO Karl Schmidt spent the last two years talking to private-equity groups, privately owned dealership groups and several of the public dealership groups about a potential sale. But, Schmidt said, they could not find the right buyer that would provide capital for growth while leaving the operations and culture intact.
Then in January, Wagener and his daughter, Cindy Wagener Robin, the dealership group's vice president of operations, found the perfect suitor at a buy-sell conference held ahead of the National Automobile Dealers Association convention in San Francisco. Earthy spoke on a panel about Fremont's interest in buying into dealerships.
"We were very impressed with Fremont's approach," Wagener Robin said. "They invest for the long term, and they don't look for a short-term profit on an investment. They let the business do what it's always done because they recognized that was the character and what made it truly valuable."
The two parties began discussions in the spring and unveiled the deal last week.
Morrie's has 11 rooftops and 10 separate franchises. It sells about 26,000 new and used vehicles a year and generates about $600 million in annual revenue. The Morrie's brand name and its Buy Happy approach -- which includes one-price selling, no-charge oil changes and car washes, and a free lifetime powertrain warranty with every new vehicle -- will continue. Financial terms were not disclosed.