Q3 2020 Transaction Report from Tim Lamb Group
33% YEAR-OVER-YEAR INCREASE
Q3 saw tremendous activity with the completion of hold-over deals from Q2 and many new transactions started, and completed, in the quarter. This elevated market activity led to 16 completed transactions in the third quarter 2020 for Tim Lamb Group and represented a 33% year-over-year increase.
Many dealers experienced record sales coupled with reduced interest expenses, and re-structured operations leading to significantly higher net profits in the quarter.
SURGE IN ACQUISITION INTEREST & INVENTORY SHORTAGE BOOST RECORD SALE PRICES
The confirmation of viability and exceptional bottom lines also led to an influx of new dealers engaging in or expressing interest in acquisitions. The surge in acquisition interest, coupled with a pullback of sellers created an inventory shortage of new listing dealerships for sale. As a result, the average transaction price in Q3 was at, or near, all-time highs.
UNCERTAINTY OF GOVERNMENT LOAN FORGIVENESS, DEFERRALS, & TAX IMPLICATIONS FUEL HESITATION AMONG SOME
Government support in both the U.S. and Canada has helped a record number of dealers boost profitability in the short term. However, questions about the application process for debt forgiveness, loan repayment deferrals and tax implications have created additional considerations and further contributed to delayed listings for dealers looking to divest of a dealership(s).
Q4 OUTLOOK: SHORTAGES & ELEVATED BLUE SKY SIGNAL A SELLERS MARKET
Our outlook for Q4 anticipates a continued shortage of inventory for franchised dealerships. Should the lack of inventory persist, we expect the blue-sky values to continue to be elevated. It is also expected that the market will continue to or move further into a sellers’ market as we progress into Q4/Q1-2021, pending any significant Covid-19 related affects. Sellers of in-demand brands in desired locations are likely to see substantial offers for their stores.
We continue to receive a significant amount of interest from large, well-capitalized dealers and dealer groups looking for opportunities to expand. Buyers continue to search for domestic, luxury, and highly sought-after import brands (Honda, Toyota, and Subaru).
We are also seeing significant interest from first time buyers and venture capital/private equity looking for opportunities to enter the market. The key drivers for all buyers continue to be brand and then location. Metro and near metro locations are in significant demand across both markets.
In summary, the lack of inventory and surge of interest in acquisitions due to an elevation in profitability, excess cash, along with historically low interest rates and aggressive bank transaction financing, has offset the cooling effects of Covid-19 and helped maintain pricing on these stores. The anticipated flood of struggling dealerships has not materialized in either country.