Following the buyer analysis in our last article about the transaction activity in the automotive sector, we now focus on the seller:
Considering the motivations of a seller is incredibly complex and in truth every situation will be different. However, we have tried to capture some of the characteristics and factors relevant to today’s market in our comments below.
In broad terms there are five types of seller:
- The strategic thinker. Typically a successful entrepreneur, the strategic thinker has been well advised over a number of years and groomed the business to its optimum position to maximise value. Whilst he or she will have defined a planned exit point that may be at some point in the future, they will consider marketing the business earlier if they feel market conditions are right.
- Retirement sale. Typically a business held for many years and may be now feeling a little tired or neglected but with good potential to add value for a potential buyer. We have seen significant pent up demand for retirement sales and momentum continues to grow in this area. We believe this is due to delayed retirement plans that have been caused by the recession and an increasing perception that franchised motor retail is simply “no longer as much fun as it used to be” with the continuing increases in pressure and the necessity to hit volume targets.
- No appetite for brand investment. At any point in time, a number of brands will be implementing a corporate identity refresh or more significant investment due to growth of the franchise. Whilst this is an ongoing process we feel that it is of particular importance moving into 2015 as brand expectations continue to increase as the market improves.
- Smaller businesses with low return on investment. Increasingly, less sophisticated smaller businesses are changing their focus from return on sales to return on investment. Continuing pressures from larger groups who benefit from stronger management, processes and economies of scale mean that achieving an acceptable return can be difficult even in the current strong market we are experiencing. This is causing smaller business owners to continually assess their relevance in the market place. This is of course a long standing phenomenon and we see no relief for the foreseeable future and the consolidation of the sector is inevitable although we do not see it’s pace increasing significantly.
- Distressed sale. Throughout the recession, the majority of volume brand disposals represented distressed sales where effectively the business faced closure if it was not sold. In 2014, the volumes of this type of activity fell to very low levels and we do not anticipate this trend changing in 2015.
Overall then, we are seeing a continual supply of businesses coming up for sale, with some positive growth driven by retirement sales and investment avoidance offset by falls in the level of distressed sales.
In the final article we will examine the “Availability of funding and review of recent transaction prices”.
For more information please contact Paul Daly, Partner at UHY Hacker Young Manchester, firstname.lastname@example.org or phone on 0161 236 6936.
This article by Paul Daly was originally published in AM Online, Franchise Dealer Report 2015.