2022 Could Surpass 2020 and 2021 in Automotive M&A

Despite the difficulties the world has faced through the pandemic, the past two years have given us many cultural shifts and silver linings, especially for leaders in the automotive industry.

2021 was a truly great year for automotive M&A, and it came on the heels of 2020, which was another incredible year with 289 completed transactions. The numbers from 2021 are still being tallied, but it appears that it will beat the 2020 total of 289 by more than 20 transactions nationwide. 

We’re getting close to surpassing one acquisition per day in our industry. Together with the changing nature of vehicle sales, this is a complete transformation in the landscape of the American automotive business.

At DCG Acquisitions we’re proud to have been a part of this historic year, with nearly 40 total transactions in 2021 (most involving multiple rooftops), and we’re extremely proud of our team for their dedication to successful acquisitions.

Going into 2022, we wanted to take a closer look at what is propelling such a fast pace of transactions and ask whether this pace can be sustained.

2022 has just begun, and it’s shaping up to be potentially even greater than 2021. Several converging factors are resulting in an unprecedented number of dealership buy-sell transactions, and the majority of them are enormous successes for both buyers and sellers. This could be the third record-breaking year in a row.

Consolidation will continue. Individual stores will be absorbed into groups of various sizes, while some groups (both public and private) will themselves become parts of larger ones.

So, what are some of the factors behind this hot market, and how are they different in 2022?

As we know, the microchip shortage has been a blessing in disguise for dealers. Automotive News puts the current ATP for new vehicles over $47,000, which is 2% higher than average MSRP. Even better, dealers don’t need to offer discounts on vehicles, floor planning costs are minimal, and there is no end in sight to the current sales dynamic.

With 2021 in the rearview mirror, dealerships now have two years of unprecedented profits on their books. 

What does this mean for M&A? For sellers—as business appraisers often consider the four most recent years of profits—2020 and 2021 together are bumping up valuations dramatically.

Meanwhile, buyers are enjoying the same profits at their dealerships, and they now have plenty of cash and credit to work with. 

You don’t have to be an expert to do the math.

Interest rates remain extremely low, so groups are looking to acquire rooftops that would have been out of their buying range in a typical year. 

As mentioned, while valuations are rising, so are the profits of companies that are in acquisition mode. In addition, low interest rates give those companies greater buying power. The long-term cost of a $5 million deal three years ago may be the same as that of a $7 million deal today.

As buyers realize they can afford the payments on bigger deals, we’ll continue to see more of these deals coming down the pipeline in 2022.

It’s not only interest rates. The 2017 Tax Cuts & Jobs Act lowered the corporate tax rate to 21%, and COVID stimulus measures over the past two years have given companies even more advantages during tax season.

This is another factor that means, at the present moment, both private and public companies have more capital to work with.

The next generation is looking elsewhere

Times have changed. Younger generations are not as interested in inheriting family-owned dealerships as they were in the past.

Even with a non-family management structure in place, many dealers do not have the same loyalty to their general managers as they have to their family members, and they’re not as confident that those team members would plan to stay with the business long-term. These owners may feel that they have no choice but to sell.

The transition to EVs comes with increased costs for equipment and training, uncertainty around the level of consumer acceptance, and a potential for a gradual loss of service revenue.

If they’re not keen on this transition, owners who had been planning on retiring in the next five to ten years now have one more reason to say, “Now’s the time to cash out.”

All current indicators point toward a continuation of the current business climate, but it can’t last forever. Several unknowns loom. Congress could pass new tax legislation. Interest rates could rise. Manufacturing could resume at a normal pace, re-balancing the equation of supply and demand.

All we know for certain is that right now, the opportunities are real. Auto groups and dealership owners are looking to strike while the iron is hot.

If you’re considering the purchase or sale of an automotive dealership, be prepared to act.

A deal has a momentum of its own. It takes focus and speed. Buyers who have their financing lined up and their teams ready to integrate new stores are the ones signing on the dotted line, while other potential buyers are still getting their documents organized.

You can’t slow the pace of a deal, because delays can cause a loss of momentum that lets doubt creep in, which could then lead to problems that derail the deal. At DCG Acquisitions, our team stays in touch with all parties, keeping the momentum and excitement of the deal alive. Transactions continue to move at a fast pace, and we intend to do the same.

We know that, as long as we remain engaged and focused with our partners, we can create successful acquisitions for all parties involved. It takes months of hard work and often hundreds of phone calls, but we stay with the job until it is done to everyone’s satisfaction.

When we accomplish that, the torch can be passed from one owner to the next. It’s that moment—when a legacy is successfully handed over across the closing table—that is the core driver behind the work we do.

All signs point toward another great year of dealership transactions, and our team is prepared to help you reach your goals in 2022.

DCG Acquisitions is one of the country’s leading, fastest-growing automotive M&A firms. Our network of connections with automotive manufacturers, financial lenders, dealership buyers and sellers, and other key players lets us deliver a qualified, competitive environment on both sides of the transaction.

Contact DCG Acquisitions to speak directly with an Automotive M&A specialist and learn how our expertise can help you get the most out of your next dealership purchase or sale.