Lack of public dealership megadeals in 2022 left room for private buyer transactions to dominate

The dealership buy-sell market in 2022, following what is considered the biggest year for acquisitions in auto retail industry history, bustled with a different kind of busy.

The 2021 buy-sell year was notable for four supersize acquisitions by the publicly traded auto retailers that helped frame the latest wave of dealership consolidation.

Deals of that magnitude did not happen in 2022.

Instead, it was private dealers and groups who collectively were the most active buyers, often completing deals for just one or two dealerships at a time. And amid steady deal activity, the number of transactions in 2022 actually outpaced 2021's total.

"2022 was still pretty hot, really up until the end," said Stuart McCallum, national dealership practice leader for advisory and accounting firm Withum. "We saw strong interest from established dealers, megadealers and then first-time dealers alike. We saw quite a few first-time dealers getting their stores in 2022."

Automotive News tracked 403 buy-sell transactions in 2022 that involved 596 dealerships trading hands. Compared with 2021, which marked the first time Automotive News rigorously documented buy-sell deals, the number of transactions jumped 5.5 percent from 382. The number of dealerships sold in 2022, however, slipped 16 percent from 707 in 2021.

The decline in the number of dealerships that sold largely is pinned on the lack of a megadeal in 2022 similar to the 2021 sales of Michigan's Suburban Collection, the vast majority of Prime Automotive Group, RFJ Auto Partners Holdings Inc. and Larry H. Miller Dealerships — with the smallest deal involving nearly two dozen franchised stores.

Public dealership groups acquired just 39 U.S. dealerships combined in 2022, Automotive News found, down a staggering 82 percent from 2021.

Less than 5 percent of all 2022 transactions tracked by Automotive News involved one of the six major public groups as buyers, down from 11 percent in 2021.

The lack of activity by the publics opened the door for private buyers to acquire more.

Private dealers bought or sold 93 percent of the dealerships that Fort Lauderdale, Fla., buy-sell firm Haig Partners tracked in 2022, more than in any previous year since it began tracking deals in 2014, according to the firm's fourth-quarter Haig Report.

Kerrigan Advisors, a sell-side dealership advisory firm in Incline Village, Nev., said in its 2022 annual Blue Sky Report that 51 percent of the publicly traded auto retailers' capital was allocated to stock buybacks, more than double what it was in 2021. Kerrigan Advisors said the publics' falling market valuations throughout most of 2022 led to fewer dealership acquisitions.

McCallum said the publics' lower stock prices last year didn't support them being active buyers.

"They could no longer find a bunch of deals that all made sense," McCallum said. "The only option were private buyers because the interest rates were still relatively low, they were flush with cash and now [they were thinking] 'I don't need to compete against somebody that can pay more than me.' "

Much of last year's buy-sell activity involved some of the largest dealership groups in the country. Automotive News tracked 245 dealerships trading hands last year — 41 percent — that involved one of Automotive News' top 150 dealership groups based in the U.S., as either a buyer or seller. As with 2021, buy-sell activity in 2022 heavily altered this year's dealership group ranking.

While the number of transactions involving the sale of a single dealership rose 13 percent to 311 in 2022, Safford Automotive Group was an outlier with the November purchase of 14 franchised dealerships in Maryland and Virginia from Brown Automotive Group.

Safford Automotive looked at smaller, multidealership deals early in 2022, but they didn't pan out, Safford Automotive CEO Jim Gramm said. And when he learned about the Brown deal, Gramm had some initial hesitation about the deal size before realizing the groups' values were a match.

"There was a lot of different, newer brands for us," Gramm told Automotive News. "And geographically, they just lined up."

Dealership lawyer Stephen Dietrich, a partner with Holland & Knight in Denver, described the 2022 buy-sell market as consistent.

"People were still seeing the value [of buying stores], still wanted to get deals done and I think people were very energized to get deals done," Dietrich said.

Many dealership buyers in 2022, Dietrich said, acquired stores to create more stability in core geographies.

"They were picking up two, three, four stores in their market or an adjacent market," Dietrich said. "Not a lot of people saying, 'All right, I'm gonna go plant a new flag in a new market.' They were growing either where they were or they may have gone into a new market, but it was adjacent to or pretty close to where they already were."

That was something Dave Cantin, CEO of Dave Cantin Group and DCG Acquisitions, noticed. He said many groups in 2022 made plans to grow their footprint locally. His firm closed more than 30 buy-sell transactions in 2022, he said.

"What we saw in '22 were more automotive groups adding to their current platforms in the same geographic locations more than ever before," Cantin told Automotive News.

Fox Motors is an example of expanding in one market.

The Grand Rapids, Mich., group entered metro Detroit in December 2021 with the purchase of two luxury stores.

For Fox, which had three dealerships in nearby Ann Arbor, Mich., the two-store purchase was strategic, giving it a footprint in the region. And other dealers and groups took notice, Fox Motors COO Diane Maher said, which led to added acquisitions in 2022 and 2023.

"It sort of took off from there because other folks in Detroit noticed that we were moving into that area," she said. "Some of the other folks called us directly after to see if we had interest in more. I think that really spurred the activity for us in that area."

One of the largest auto retailers in the country, Ken Garff Automotive Group, contacted Fox, Maher said, to see if it would be interested in its three Michigan stores, all of which were in metro Detroit.

Fox indeed was. It went on to buy two Stellantis stores and a Cadillac dealership from Ken Garff in a July 2022 acquisition. And Fox bought two more stores in the Detroit area in March, in a deal also spurred by another direct seller contact.

Maher estimated she was pitched about 10 times last year on dealerships Fox did not buy because they weren't geographical fits, and there were a couple dealerships that Fox bid on but didn't win.

Maher said, in general, sellers last year were unreasonable on the prices they wanted for their stores.

"The deals that we did, we got to a reasonable place," she said. "We definitely passed on a few because we're like, 'Wow, that's crazy. We're not going to do that.' "

One buy-sell broker, Ben Hicks, CEO of Hicks Management & Consulting Group in Arlington, Texas, agreed that dealership pricing was extremely high in 2022.

"I think that obviously the buyers felt that the deals were high, but they knew they were going to have to pay the price if they were going to get them bought," said Hicks, whose company completed around seven deals in 2022.

Blue sky values — the intangible value of a dealership, including goodwill — peaked at $26.5 million in the first half of the year for the average publicly owned dealership, according to the fourth-quarter Haig Report.

To be sure, large private groups weren't the only buyers in 2022.

Jose Oliver became a first-time dealer when he bought a Subaru store in Rutland, Vt., in September.

And he didn't wait long to buy again. In May, Oliver acquired his second dealership, a Ford store in Bennington, Vt., about an hour's drive south of Rutland.

"It's strategic for us to pick locations that are within the markets that we live and do business with," Oliver said. "You have to have local operators that know the community and want to get involved and show their presence and I think that's been advantageous for us to grow in Vermont."

#1 Cochran Automotive, of Monroeville, Pa., bought two dealerships in 2022. Its March 2022 purchase of a Ford dealership was the group's first acquisition in three years. CEO Rob Cochran said despite the gap in acquisitions, the group had been looking to grow.

"I think we're in a period where things are changing rapidly in the expectation for tomorrow and next year and three years from now," Cochran said. "I think everybody knows that it is going to be different with both the products we're selling and the manner in which we're selling them and the relationship with the OEMs. It's fluid."

Cochran said there are some groups and dealers asking themselves if they want to continue in the business, or if now, based on recent dealership earnings, is the time to exit.

"Those on the buy side are people that recognize that there's opportunities and as we go forward, that you probably need to get bigger if you want to compete as much," Cochran said. "There's an efficiency with size."

#1 Cochran has acquired four dealerships in three separate transactions this year.

"For those of us that want to grow, we're still out there looking," Cochran said.