Degnan: Late ‘23 a Buyer’s Market for Acquisitive Dealers – RVBusiness – Breaking RV Industry News
While the North American RV industry has experienced an unparalleled era of retail consolidation in recent years – fueled largely by ambitious, well-funded dealer groups – that acquisitive pace has apparently slowed somewhat lately, according to insiders like Scott Degnan, CEO and co-founder of Denver-based RV Business Solutions (RVBS).
“There’s been quite a bit of consolidation over the last two to three years,” said Degnan, whose 3-year-old firm advises dealers on how best to buy or sell their retail dealerships. “I’d like to think that we had a pretty good piece of that (business), but it has slowed down a couple of months ago. The dealers looking to buy – purchasing dealer groups – have just slowed down a little bit because I think they may have bitten off more than they could chew recently.
“So, they maybe overextended a little bit – and we all know who the big buying dealer groups are out there,” said Degnan during a break in the action at last week’s RV Dealers Convention/Expo in Las Vegas. “So, they kind of pumped the brakes a couple of months ago. But now we’re seeing it start to come back again, very active among dealerships looking to sell.”
And Degnan told RVBusiness that a number of smaller recreational vehicle dealers are at the center of today’s buy-sell activity.
“Yes, unfortunately, there are a lot of small dealers – single location, $6 to $10 million in revenue – who are struggling and wondering if they want to go through another cycle like this,” said Degnan, who previously served in RV OEM management. “And, so, we’re getting a lot of calls from the smaller moms-and-pops, as we affectionately refer to them, who are facing curtailments and aging inventory and are looking to sell their dealerships.
“We’re seeing more of that than we’ve seen in the last couple of years,” he added, standing amid convention traffic at Paris Las Vegas. “But the consolidation is continuing to the extent that by the end of ‘23, if you look at all the acquisitions compared to ‘22, I think it’s going to be very similar in terms of the numbers of U.S. dealerships – although maybe not the size of them. And then, I would think that ‘24 should probably be very similar to ‘23 with regard to the number of acquisitions.”
Ultimately behind much of the ebb and flow in the current pace of consolidation, of course, is the general economic environment that has impacted this and other U.S. industrial sectors, said Degnan, a partner in RVBS with President and Co-Founder Mike Lankford.
“Oh, sure, it’s a reflection of that,” added Degnan. “There’s no doubt. Interest rates are high. No surprise everybody’s talking about it, but that puts a lot of pressure on their flooring costs. If a dealer’s flooring costs were $30,000 a month not too long ago, for example, they’re now $70,000 or $80,000 a month. I mean, that’s hard to swallow for a lot of these dealers. They’re just seeing their curtailments are coming due and their flooring dollars every month go up coupled with sales that are maybe not quite as robust as they were in the past.
“So, it’s kind of a perfect storm for some of these smaller dealers just to tap us on the shoulder and say, ‘Maybe now’s our time.’”
Degnan, bottom line, is seeing more sellers than buyers right now for all of the aforementioned reasons in what amounts to a buyer’s market in many cases – a market that, in fact, includes a number of small stores that in some cases are literally on the financial brink.
“Right,” he elaborated. “We have more selling dealers right now in our portfolio than we have dealers looking to buy them. But part of that, I think, is also the sellers’ pricing. I mean, it’s understandable, but a lot of these dealers, are still valuing their dealership in their own minds like it was a year or two ago.
“2019 was a tough year,” he said in referring to the average dealer’s bottom-line numbers. “Then, 2020 was gangbusters. ‘21 was even more gangbusters. ‘22 started to pull back a little bit, and now we’re finishing ‘23, which looks a lot like 2019-ish in terms of a dealer’s P&L or their income statements. But a lot of them are still trying to value it like it was a year or two ago.
“So, you’ve got some of these dealers with heightened expectations of the value of their dealership, and you’ve got the buying dealers, the acquiring dealers, that are like, ‘Well, I’m not going to pay you what you think it’s worth because that’s still a big unknown out there,’” Degnan added. “So, that’s the kind of conundrum we’re seeing – dealers who are putting a high value on their own dealerships and potential buying dealers that are valuing it much lower than that. So that’s the gap, and that’s where we come in to try to bridge that gap and make a relationship between those two.”