Is It Time For Consolidation In The Powersports Industry?

For years now we have seen a lot of merger and acquisitions of Marine and RV dealerships, but very little activity on the powersports front. There are a few groups who have rolled up some Metric and Harley stores, but nothing like what we see in other industries. I’ve talked to different groups who have shown some interest in putting some new groups together, but once they complete their due-diligence, most move on because the risk isn’t worth the potential reward.

Looking at the powersports industry over the last decade, it’s clear that large dealerships have outperformed the small ones, often by a wide margin. The key reasons that bigger dealers generate better returns:

• Multiple brands allow larger dealers to identify and stock the most popular and profitable vehicles.
• Recalls and production delays are becoming more frequent. A dealership with only one brand under the roof can be put out of business by wide-ranging product recall.
• As a dealer grows, more specialized positions develop within the dealership. An employee who can focus on one task will be more productive and efficient, and often produces better outcomes.
• Marketing continues to grow in complexity. A large dealer can allocate the resources that are required to be effective in today’s marketplace.
• Multiple brands under one roof can help dealers from being steam-rolled by an OEM who has gotten too big for their britches (right now there are a few of them, but I’m not calling anyone out).
• Larger stores offer opportunities for motivated employees to grow, both in responsibilities and in compensation. There is a huge difference between a job and a career.

For years I have been making the statement that as an industry, we have too many OEMs and too many dealers. Planning to sell a dealership can take years, and many of the powersports dealers across the country have not put the time or energy into that process. Without well-capitalized groups rolling dealers up, many stores were just idling, waiting to see what would happen in the future. Hoping some outsider who didn’t know how hard it is to make money in this industry would stumble in with a blank check.

Well the future is now. The COVID-19 pandemic created a lot of unique situations. I don’t know anyone who stood up last March and made a prediction that 2020 would be the best year on record for most dealers, but it was. Many dealers came into the pandemic with considerable amounts of old age and obsolete unit inventory. Quite a few of them had considerable amounts of debt. The pandemic created a once in a lifetime situation where dealers could sell all of that old inventory (in many cases for a handsome profit), and in the process, clear out the warehouses and showrooms.

Many dealers are now in a position where they don’t have much unit inventory in stock. They also used last year’s business to pay off debt, and have lots of money sitting in the bank. Yep, 2020 was an odd year.

I’m now starting to see some of these smaller dealers either close up shop, or sell out to other dealers in their market. With clean warehouses and solid balance sheets, there’s not been a better time to sell.

Currently, it’s tough to obtain new inventory. Many parts and accessories are on backorder. Rising prices are creating more demanding customers. We are seeing many OEMs rolling out new showroom configurations which are outrageously expensive (and which won’t sell any additional units). Without a clear way to generate 2020 level profits in 2021, getting out right now might be the best decision that many owners have made.

#Powersports #RV #Marine #M&A #Mergers #Acquitisions #BusinessForSale