Shifting Gears: How M&A and Capital Strategy Are Redefining Auto Retail

The new year has brought with it considerable optimism regarding the future of automotive retail and prevailing M&A activity.  It has also brought with it inherent market challenges, including weakening automotive brands, upward movement in the 10-year treasury, and normalizing levels of net income.  If there’s one takeaway from the unexpected winter storm that was NADA 2025, it’s that automotive retail is as resilient as ever, and this industry will continue to thrive despite current challenges.  

After the robust and near-record-high M&A market of 2024, acquisition activity is expected to continue rising above pre-pandemic levels.  

In their recent article titled “Auto Retail in 2025: Optimism, Opportunities, and What Dealers Need to Know”, Haig Partners, one of the leading M&A advisory firms in automotive retail, writes, “We remain bullish on auto retail as we head into 2025. While dealership profits may have stabilized, key signals – including rising buyer confidence, stronger dealership offers, and increased interest from private equity and family offices – suggest a strong market ahead.”   

Shortly after this article was published, Asbury Automotive announced its $1.34 billion acquisition of Herb Chambers, set to close in late Q2 2025. This is the largest acquisition by a public dealer group (or any dealer group, for that matter) since Asbury acquired Jim Koons Automotive in late 2023 for $1.2 billion. Amidst earnings season, the six public auto retailers have indicated that, unlike their 2024 focus on repurchasing their own shares, they will be active players in the buy-sell market—with the caveat being, of course, that the deals must provide a strategic benefit to their overall growth plans. Public dealers, however, are not the only well-capitalized buyers seeking strategic acquisitions. 

As Haig mentions, we continue to see the emergence of institutional and family office-backed capital chasing dealership investments (i.e., Franchise Equity Partners, Open Road Capital, Redwood Holdings, etc.). This growing number of equity sponsors allows dealer groups to significantly increase their purchasing power and compete on a larger scale for desirable brands in dense retail markets.  

Like the surge of new capital partners, sale-leasebacks are rapidly establishing themselves as a dominant and accepted financing form. A proven growth lever in retail and private equity, sale-leasebacks provide accretive financing that allows companies to maximize earnings and fuel continual growth. We continue to see significant interest in sale-leaseback capital from both large dealer groups and smaller growing operators. 

Benefits of a sale-leaseback financing relative to other forms of capital include: 

• - Unlock real estate values of up to 140%+ of appraised value 

• - Lower Rates and Higher LTV  

• - Reduced Blue-Sky Acquisition Multiples Through Sale-Leaseback Arbitrage during the M&A Process

• - Maximize ROE of Dealership Operation 

• - No Personal Guarantees 

• - Long-Term Site Control 

• - Covenant Free 

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Our Dealership Capital Markets & Advisory team is the market leader in dealership sale-leasebacks.  To learn more about maximizing the value of your dealership real estate, reach out to our dealership team today.