Pub. 3 2021 Issue 1

2021 Predictions We believe that 2021 will see many dealers addressing concerns for the future of their dealerships. Continued eco- nomic downturn, increasingly conservative lending perime- ters and increased taxation could mean that the opportunity to sell for a strong number may not survive into 2022. Greater New England 2020 Dealerships in Maine, New Hampshire, Vermont, Massa- chusetts, Connecticut, Rhode Island and New York State sold for prices somewhat higher than in 2019. While our firm experienced delays in closings scheduled for March, April and May, not one dealership sale was cancelled or re-negotiated. Dealership evaluations remained as strong as in 2019 and for some franchises have increased. Dealership sales and values are rising in secondary markets Due to the pandemic and concerns about changes in our demographics, there is one new and very interesting trend that has occurred throughout Greater New England and that is an increase in the desirability of secondary market area dealerships. The migration to small cities and commu- nities incentivized by the pandemic and it’s ramifications in major metro areas has caused many strong buyers to take a look, for the first time, at a different type of market area. When they did, they found a lower cost of entry, more moderate real estate values, longer term employees, reduced expense structures, higher used vehicle sales and more loyal customers. In fact, the number of secondary market area dealerships in Greater New England sold to regional dealership groups has never been higher. We believe this new wave of deal- ership acquirers that are willing to purchase in areas they would have previously ignored, bodes well for the value of secondary market area dealerships. Upgraded facilities are viewed more favorably and sell for more We believe that the incremental increase in dealership values over the last few years has a great deal to do with the investment in new buildings and expensive facility upgrades that dealers have recently made. Some dealers found these investments could not be absorbed by their operations and their dealerships became unprofitable or much less profitable as a result. This developed into a higher number of brand compliant facilities with desirable franchises being offered for sale. Fortunately, the transition in buyer type demonstrated in chart 2 meant that larger, stronger buyers willing to orchestrate a major turnaround of an underperforming dealership became the prime candidates for these dealerships. There is an enor- mous cost involved in acquiring a non-compliant dealership and the benefit of a new facility is a great incentive to today’s regional buyer. The time it takes for a well planned turnaround verses a major construction project can be analyzed and determined in advance so that a reliable and bankable deci- sion can be made about the viability of the acquisition. Trajectory of bricks and mortar in the industry Only 20 years ago, less than 25% of dealerships sold by our company needed to perform new construction or sig- nificant renovation. This increased steadily until 2016 when 100% of the dealerships sold were required by their fran- chisors to upgrade in order to obtain approval. As more and more facilities build or upgrade to become compliant, additional dealerships become available for sale because their owners cannot find their way to profitability under their higher expense structure. See chart 3. You should consider selling if: • Your dealership is not profitable • You are facing a significant facility upgrade • You are not meeting your sales performance criteria • Your floor plan lender does not want you • You have serious health problems and no legacy plan • You do not wish to go through another economic downturn • Your contiguous market is being overtaken by larger dealer groups You should consider buying if: • An opportunity becomes available in your market area • Your franchise is up for sale in a contiguous market • You wish to keep an outside group out of your area • You have multiple adult kids in your business • You have good general managers who may leave you if you do not provide an equity position Nancy Phillips President np@nancyphillips.com 603-658-0004 Carrie Phillips Forbes Vice President of Dealership Sales carrie@nancyphillips.com 603-658-0004 This content is part of a larger article. Read more here: https://bit.ly/3o63Q9J Chart 2 Chart 3 N E W H A M P S H I R E 21