David Hudson, CEO of the growing Hudson Automotive Group in Charleston, S.C., said he spends about half of his time focused on mergers and acquisitions. Hudson's group, which had 33 stores as of late July, acquired its first Alabama dealership in June when it bought Hoover Toyota. It also plans to buy three Mercedes-Benz stores in Kentucky and Ohio from Peterson Automotive Collection.
Hudson said he fields many phone calls from dealers who have owned stores for decades and generations but think now is the time for them to leave the business.
"It seems like there's, at least right now, plenty of ample potential sellers that are in-market or coming to market to keep this level of activity or something close to it going into the foreseeable future," he said.
Likewise, Jon Briggs, CFO of Cavender Auto Family in San Antonio, which last month bought six stores in Texas from Alderson Auto Group to grow to 12 dealerships, also anticipates a busy 2022 for the buy-sell market. "I talk to brokers and bankers and accountants and various third-party industry folks every week, almost every day," about possible acquisitions, Briggs said.
Dietrich, who predicted that the pace of consolidation will continue to quicken, said it's not only high prices dealers can reap from selling now that's driving consolidation. He said some aging dealers lack succession planning, and other factors such as technology evolutions weigh in their decisions to sell.
Kevin Kutschinski, CEO of Foundation Automotive Corp., based in Calgary, Alberta, and with 18 U.S. stores as of August, said his group hopes to buy another 22 stores yet this year. He joked that his staff doesn't "plan on sleeping until probably mid-January."
Kutschinski noted his group's U.S. growth is focused on Texas, Tennessee and Colorado.
In May, Foundation acquired AutoNation Hyundai 104 in Northglenn, Colo., and moved the renamed dealership about 2 miles away to Westminster.
In July, Foundation bought Boulder Hyundai from dealer Jeff Baca, also in Colorado.
The dealers noted that they look at plenty of deals where the returns just aren't good enough or the seller's expectation on prices — some wanting to be rewarded for 2021's record dealership profits — is just too high.
Kutschinski said the acquisition pace among the publics has pushed dealership pricing higher. He said when trying to figure out what to pay for a store, his group looks at dealership profits from 2018, 2019 and 2020, "and [we] don't put a lot of weight into 2020."
"Everybody's got kind of unrealistic expectations right now," he said.
Dietrich said many transactions are seeing delays because of the volume of pending deals. He expects a busy rest of the year with some overflow of closings into 2022.
"We've even started to hear from some of the manufacturers that if you don't have the deal submitted by X date, then it's virtually impossible to get a year-end closing," he said.
Added Hudson: "All the OEMs we're talking to have more buy-sells on their desk that are in process maybe than they have at any point in recent memory."
The rush, however, to meet end-of-the-year closing targets because of concerns about possible capital gains tax increases appears to have slowed, Dietrich said. The House Ways and Means Committee has proposed boosting the long-term capital gains tax rate from 20 to 25 percent, with the new rates taking effect retroactively on asset sales occurring after Sept. 13, 2021, according to CNBC.
"The pressure to try to get a fresh deal done and closed by the end of the year may not be a practical concern because that's likely to be impacted by whatever tax code changes take effect," Hudson said.