Digital Dealer - March 2018 - 17

acquisition opportunities.

CHART 2

PRIVATE CAPITAL.

Number
of Dealership
Groups with Greater
than 10
Number
of Dealership
Groups
Dealerships
with Greater 2011
than- 2017
10 Dealerships
2011 - 2017 YTD
128
90

2011

104

109

2012

2013

2014

134

138

141

2015

2016

2017

Source: NADA

retail experience that see
the opportunity to grow
in our highly fragmented industry, and have
taken on the challenge of
managing across geographies. Sometimes these
platforms are relatively
transparent in their ownership; in other cases,
they rely on local general
managers and do not
advertise the scale of their
holdings.

AUTO RETAIL PUBLIC
COMPANIES. There are

seven publicly traded U.S.
companies focused on
auto retail - AutoNation,
Penske, CarMax, Group
1, Lithia, Asbury, and Sonic. These companies have
continued to complete
acquisitions, although
not at the torrid pace
of the 1990s and early
2000s when they were
being built on aggressive
acquisition strategies. In

the first nine months of
2017, these companies
spent, in aggregate, $812
million on U.S. dealership
acquisitions, representing
a 61% increase over the
first nine months of 2016
(See Chart 3). These
companies will continue
to acquire dealerships,
though they do have limits
imposed by OEM framework agreements which
dictate the number of
stores they can buy with
certain OEMs. We have
also seen the publics
deploy cash flow outside
of dealerships, such as
AutoNation's aggressive
move into auto parts,
collision centers and used
cars centers in 2017.
PRIVATE EQUITY /
FAMILY OFFICES. In

recent years. there has
been a lot of talk of private
equity and family offices
coming into auto retail.

There are a few examples
of a successful entrants,
primarily in the form of
family offices. It is worth
making the distinction that
private equity firms have
made very few acquisitions, and the primary
reason is that most private
equity firms have a relatively short period of time
for which they can hold
their investments (typically
five to seven years), which
has made OEM approval
difficult. However, family
offices, which operate in
a very similar manner to
private equity with the
exception that they can
hold their investments
indefinitely, have been
more successful in getting
some deals done given
their longer investment
horizon. We continue to
see a handful of large
family offices active in the
space and seeking further

A significant new trend
we are seeing is auto
dealership groups taking
on investors, in lieu of an
outright sale. We estimate
that 72 transactions in
2017 were not a 100%
sale, but reflected the
sale of the majority or
minority of the business to
a capital partner. This is
a relatively new phenomenon in auto retail, but
we think it is an important
trend given the increasing
costs to grow, build image
compliant facilities, and
successfully complete
acquisitions. Specifically,
we see high net worth individuals investing directly
into dealerships, or partnering with experienced
dealer operators to make
investments. In some
cases, these investments
are quite large, up to $100
million.

INTERNATIONAL
PLAYERS. To the surprise

of many, we are regularly
contacted by auto-related
companies from around
the world who are interested in U.S. auto retail. An
example of this is PON, a
multibillion-dollar privately
owned auto distribution
company in the Netherlands, that identified U.S.
auto retail as an attractive
opportunity for expansion,
and made a significant
investment in Indigo Auto
Group. We currently have
two clients under contract
with international auto re-

D I G I TA L D E A L E R . C O M

Continued on pg. 18
MARCH 2018

17
http://www.DIGITALDEALER.COM
Table of Contents for the Digital Edition of Digital Dealer - March 2018
