According to Cocking, it's more common for agency consolidation to take a form like NAC's, where an F&I product administrator is the one buying agents. It's less common to see an agency focused on buying other agencies, she said. Brown & Brown Dealer Services and Vanguard Dealer Services have been among the exceptions to this rule, she said.
"If I had my own agency, that's what I'd be looking to do," Cocking said.
Most of the acquisitions involve agencies in the $1 million-$4 million EBITDA range, Cocking said. She said "very few" agencies produce more than $5 million worth of EBITDA.
"It's hard to scale," Cocking said, and an agent might not want to bother doing so. If the agency owner can do $2 million a year in sales thanks to relationships with just a few dealerships, she said, "why stress yourself out?"
Scaling also doesn't necessarily yield more profitability, which is why few agencies grow beyond a few million dollars in sales, she said.
However, there are benefits to scaling as well, particularly expanding one's geography.
"I think this is kind of the biggest advantage," Cocking said.
She gave the example of a small agent doing business with a dealership group customer in nearby states but unable to service the group's rooftops located farther away. If the agency had coverage in the other states, "you absolutely get those stores," Cocking said.
A small agency also will eventually reach a plateau in the number of products with which it can familiarize itself. Buying other groups means the vendor can represent more administrators specialized in different vehicle types, such as exotics or high-mileage older models.