Buy/sell activity to remain hot in 2016

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Though mostly anecdotal, the evidence is strong that mergers and acquisitions in 2015 stayed on a strong pace.

The larger dealership groups – Dilawri, AutoCanada and the like – all added several stores while some regional players continued to blossom thanks to the proximity of available platforms in smaller markets and the benefit of low cost borrowing.

Couple that growth prospectus with overall industry consolidation and the aging of Canada’s dealer body, and 2016 could be another record year for buy/sells.

Samir Akhavan, managing partner at Templeton Marsh, recently took time out of his busy schedule to talk with Canadian AutoWorld about the market at large, where things are headed and how Quebec could be the hot spot in 2016.

Canadian AutoWorld: Give us a snapshot of the buy/sell market in 2015
Samir Akhavan:
As you know, there is no regulatory agency, institution or association that keeps proper stats regarding the number of dealership transactions every year, but my sense tells me that 2015 was the best year for transaction activity in recent memory.

Acquisitions and mergers are driven by need for dealers to expand. Right now money is cheap, a lot of dealers are approaching retirement age and the bigger your group gets, potentially, the easier it becomes to do business.

This year has been loaded with activity, even in the face of the stumbling economy and dropping dollar value.

Are we still in a seller’s market?
Absolutely. Even in Alberta, where people have adapted to new market realities. Consumers, industry and humanity at large generally have a very short memory. I think this spring people in Alberta will forget the heydays of the oil and economic boom and the current market will become the new normal.

As for the rest of the country, we have some larger, well-funded groups with firm growth targets, meaning single points and smaller groups are in a great position to get a strong return on any deal.

What will the buy/sell market look like in 2016?
I think it will at least be the same and possibly more of what we saw in 2015.

Sellers might start thinking the ride could be over soon as we head into our third consecutive year of record new-car sales. We have had positive growth over the last six years and some dealers might be thinking we have hit the glass ceiling. Most potential sellers might think that despite the chance sales could remain strong, they might not want to take the risk and decide to move on.

Where geographically will we see the most activity?
It will be like it always is with most business done in the population centres like B.C., Ontario and Quebec. That said, I think Quebec will be interesting. While there has been some merger and acquisition activity in Quebec, it’s probably not been as significant relative to what we have seen in Ontario, B.C. and elsewhere.

All of a sudden, 2015 saw a spike in acquisitions, mostly in B and C markets, in Quebec
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What is interesting is that Quebec dealers are telling me that come 2016, they are going to start knocking on doors with both buyers inside and outside the province. At the same time, dealer groups from outside Quebec are starting to realize there is a huge, untapped market in the province and there is no need to be left out.

Making that market busier will be bigger dealership groups from other parts of Canada looking to expand there; there are also a number of larger groups in the Ottawa area are looking at the province now.

In many ways, Quebec might be the next frontier for mergers and acquisitions in Canada.

This would be a logical move for the larger maritime groups – O’Regans, Penny, Steele, etc. – as opportunities dry up in the Maritimes.

For sure. There are a number of  well-funded groups in Atlantic Canada that have to look west if they want to keep growing as open points in their home provinces have essentially all filled.

FCA has been the hot brand of late for dealers looking to buy as it manages to hang on to the new car sales volume crown. With the launch of a national lease option for Chrysler dealers, will that demand continue in 2016?
That is tough to answer. What I can say is there are a few brands where demand lags and that probably won’t change quickly. The most attractive brands in 2015 will continue to be so in 2016.

Dealers will continue to want Honda, Toyota, BMW and Mercedes-Benz.

What about VW’s emissions scandal? Is dealing with that long-term problem souring buyers?
I don’t think so. I have three Volkswagen deals on the go right now and two of those are moving forward. The brand’s October 2015 numbers were higher than October 2014 numbers and my clients are telling me November will be a strong month, too.

Consumers don’t read Automotive News or Canadian AutoWorld. Look at GM and its ignition switch scandal: nobody is talking about that anymore. The emissions scandal is a pollution issue, not a safety issue.

The environment is one of those things people talk about extensively, until it comes to economics, which always trumps every other consideration.

Buyers have short memories and they are interested in great deals. The incentives on the hood of available VW nameplates provide real value for money. Those deals will appeal to a lot of buyers regardless of all the other emissions issues.