We write a lot about succession in the pages of Canadian auto dealer — including this issue’s cover story.
That’s because the core audience of our magazine consists of dealer principals, who think a lot about these issues. And other senior managers like general managers, who also think a lot about it!
When we do up our list of issues that keep dealers up at night, succession planning is almost always near the top.
There are a few reasons for that. As business owners with significant capital tied up in their facilities and business operations, one way they can extract that equity is to exit the business and sell to another suitor.
To do that effectively, they need to have been planning and laying the groundwork for years, to ensure any buyer is assured of a smooth transition when they are handed the keys to the store.
As the experts we interview often tell us, too few dealers are really prepared for that day. They have to clean up their balance sheets, sort out their estate and tax planning implications, consider the real estate implications, and keep their OEM partner in the loop.
There are many reasons they don’t have all the pieces in place, including complex family dynamics, a concern that discussing these issues could be “leaked” to the marketplace (thereby affecting their current business), and a host of other factors.
Experts in the mergers and acquisitions industry in Canada tell us they are doing a remarkable number of dealership valuations across the country, and this after an already brisk spell of dealership sales in recent years.
This could signal a few things. Dealers want to take stock and have a sense of what their business is worth. This is not surprising given the shock the pandemic inflicted upon every business owner, who had to wonder about the impact on their value.
It could also signal the start of another wave of buy-and-sell activity in Canada. Dealers who were nearing the end of the road and thinking of selling anyway, might be leary of taking another prolonged hit that could decrease the value of their business and lower their operating profits that are used to help determine the sale price.
As business owners with significant capital tied up in their facilities and business operations, one way they can extract that equity is to exit the business and sell to another suitor.
There are also other factors like their hesitancy to invest significantly in new technology to provide a more digital buying experience, the perceived impact of electric vehicles coming to market on a bigger scale, the lack of a solid bench of senior managers to take their place, or just wanting out of an exciting but stressful business.
Whatever the reasons, dealers will continue to explore their options and we expect the big groups to get bigger, shedding some dealerships that don’t fit well within their groups, and acquiring others that do.
Another interesting factor to watch, both in terms of buy/sell activity and dealership valuations, will be the impact of some brands that have a solid electric vehicle lineup now or coming soon, and those that don’t. The low volume of EV sales so far hasn’t been a major factor, but that could all change soon, and those that are in the EV game might be considered more attractive dealerships to acquire.
As it all unfolds, we will have a front row seat and will continue to bring you advice and opinions from industry experts, who
have the ear of dealers and know the inside scoop!