By Alysha Webb, Editor and Publisher
Dealerships in the south-central Texas city of San Antonio are doing well. The economy is strong and the Eagle Ford Shale oil discovery in south Texas is boosting business, especially pickup sales.
The dealership business in San Antonio is unusual in that it is dominated by family-owned dealership groups. Automotive Buy Sell Report talked with one of those family-owned groups, Ancira Auto Group, about its acquisition strategy.
Ancira has not acquired a dealership in years. Greg Spence, the Group’s executive vice president, told Automotive Buy Sell Report that prices have been too high. It has grown by finding or being offered open points.
“We are interested in the right thing at the right price, and there is typically a pretty big divide [between what Ancira considers the right price and the asking price],” says Spence.
Ancira’s situation illustrates how the value of a dealership can vary based not just on the store’s fundamentals but also on the type of organization doing the buying. While the publicly-owned groups might buy a dealership because it feels it can improve the operations and add value, that is not necessarily the case for a family-owned group such as Ancira.
“The biggest thing I always hear, and we laugh, is ‘you guys should pay us versus what you could do with the store versus what we are doing with the store,’” says Spence. “We say, ‘we will pay you based on what you are making’,” not on what we think you might be able to make.
(Automotive Buy Sell Report has discovered that dealers both public and private that are finding success in the current acquisition market need to look at pro forma as much as they look at the seller’s past performance.)
The Ancira Group has dealerships all over Texas and is always looking for good acquisitions, says Spence. When considering an acquisition, Ancira looks at two to three years’ worth of financial statements, add backs, market share, the brand, the store location and other factors when considering what it is willing to pay.
In Texas right now prices are running four to six or seven times Blue Sky, says Spence. The price Ancira would be willing to pay depends on the franchise, naturally. It would pay four times earnings for a domestic franchise such as Chevrolet or Chrysler, he says, and sellers are asking up to seven times.
Although Ancira has looked at up to 10 different deals in recent years, the last time he can remember the Group buying a store was around 2001, says Spence. Then, it acquired several Ford stores.
Its preferred method of expansion is being awarded new points by the manufacturers. For example, Volkswagen gave Ancira an open point in the border town of Laredo, where the store opened in June, 2013. Chrysler gave the Group a Fiat point in San Antonio where it opened a store in June, 2011. Its auto dealerships are concentrated in South Texas, near San Antonio and down on the Texas-Mexico border. Ancira is also a brand name that is recognized in Texas, he adds.
Beyond that, the Group wants to have people to staff a new store. Ancira proposed to Volkswagen that it open a dealership in Laredo because it had good candidates in mind to serve as the general manager and accounting person, says Spence.
“This is probably the reason we won’t just go out and try to buy stores,” he says. “We want somebody who thinks like us.”
As for what brands Ancira likes, the Group, which currently has 11 franchises, is “more opportunistic” on that front, says Spence. Currently, Ancira is making a pitch for a new point for an import brand near Corpus Christi. The manufacturer asked Ancira to bid for the point.
The Group periodically send letters to manufacturers asking if they are looking for new points in Texas. It also hears about stores for sale through the grapevine and through brokers’ calls, says Spence.
Ancira sold 22,815 new vehicles in 2013 including 10,525 fleet vehicles. It sold 6,672 used vehicles. In the first six months of 2014, it sold 12,033 new, including 5,538 fleet vehicles and 3,382 used vehicles.
Despite healthy sales, Ancira is not overly eager to expand, says Spence. “We have always been pretty conservative,” he says. The right time to expand will be when there is a market downturn, says Spence. The market is good right now, but “it can’t go on forever,” he says. If interest rates start rising, hitting five, six, or seven percent, “I think those [dealership] values will turn and maybe there will be some good buys.”
Then, Ancira might see some deals it likes.