Growing your dealership group through mergers and acquisitions: A strategic guide

You might be thinking more about these opportunities as interest rates are poised to fall over the coming months. Navigating the complexities of M&A requires careful planning, strategic execution, and a clear understanding of the benefits and challenges involved.

What are the benefits of M&A?

Mergers and acquisitions involve combining two or more companies into one — either by merging them together or by one company acquiring another. For dealership groups, M&A can provide several advantages:

• Market expansion — Acquiring dealerships in new geographic regions can help a dealership group enter new markets quickly and efficiently.

• Economies of scale — Larger dealership groups can benefit from bulk purchasing, centralized operations, and shared resources. This leads to cost savings and improved profitability.

• Diversification — M&A allows dealership groups to diversify their brand offerings, reducing dependency on a single manufacturer or market segment.

• Enhanced competitive position — Growing through M&A can strengthen a dealership group’s market position, making it more competitive against larger national or regional players.

Key considerations for a successful M&A strategy

According to research from Harvard Business Review, between 70 percent and 90 percent of M&As fail to return value. That’s a concerning rate of failure — and could rightfully turn you away from exploring this opportunity. However, there are some ways to ensure you don’t become a part of that majority:

Strategic alignment

Ensure that the target dealership aligns with your group’s strategic goals. Consider factors such as brand compatibility, market presence, and customer base.

If your dealership is a luxury dealership, acquiring another luxury dealership could help your portfolio align with the expectations of your customers and brand image. A dealership located in a region where you currently have little to no presence could also be a good fit if you are looking to increase your market coverage.

Financial health

Conduct thorough due diligence to assess the financial health of the target dealership. Evaluate their balance sheets, income statements, and cash flow to understand potential risks and rewards. Be careful about estimating your ability to turn around an organization that is struggling with profitability — these situations can often be more complex than they appear from outside.

Cultural fit

Integrating two companies involves blending corporate cultures. Assess whether the target dealership’s culture will fit well with your own, as cultural clashes can derail the success of a merger.

Different approaches to sales practices, management styles, and work environments can all lead to cultural clashes. For example, if your dealership prioritizes building long-term relationships while the target dealership is focused on short-term gains, these differences can cause culture clashes in the future.

Integration plan

Develop a detailed integration plan to combine operations, systems, and teams smoothly. Effective integration is crucial to realizing the benefits of the merger and minimizing disruptions.

Pay a fair price

A major reason for failure is because the acquiring organization paid too much for the business. Working with external advisors and conducting thorough due diligence is the foundation of a successful deal for all involved.