As with stocks , don ' t try to time the market

By Brad Stanek CFP , Morgan Stanley

Ancient Roman philosopher Seneca once said : “ Luck is what happens when preparation meets opportunity ." I couldn ’ t think of a more elegant way to describe what ’ s happening in both the economy and buy-sell market for marine dealerships today . Clearly , we ’ ve hit an inflection point . The exceptionally buoyant days of the pandemic have been replaced by the Fed ’ s aggressive rate hiking campaign , which has made the cost of capital substantially higher for boat buyers , dealers , and acquirers alike .

A prominent industry professional and Marine dealer consultant told me on a recent webinar that the pace of transactions has slowed from what we saw during the pandemic , as “ Margins are back to more normal levels of 15-20 % and depending on the non-current [ inventory ], maybe even less .” He also went on to note that , “ Floorplan interest is now up to 8-9 %, levels we haven ’ t seen since the early 2000s . Now we have to get back to doing business as usual .” However , returning to ‘ business as usual ’ is not happening at the speed we would like . He also stated that he has seen dealers paying $ 300K per month in interest and curtailments , which is not sustainable .

That being said , my team and I have found that premium dealerships situated in expanding markets , with desirable brands and other high-quality attributes , continue to command respectable multiples . But with more and more sellers entering the market , buyers can afford to be pickier . So , if you ’ re thinking of exiting , you ’ ll need to sharpen your pencil and get prepared well in advance .

Current environment for sellers

Jon Couwenberg , a partner at Performance Brokerage Services , Inc . and Director of the Marine Division said the marine buy-sell market remains brisk , though it has certainly shifted over the past year . As more sellers are considering an exit , buyers have become more selective with the stores and markets they pursue . “ The record-breaking margins we saw during COVID are normalizing . Recognizing that those profits were unsustainable , buyers are assigning less weight to those years when preparing their forecasts and projections ,” Couwenberg asserted .

However , he said the national dealership groups still have a strong appetite for “ quality acquisitions that align with their long-term strategies .” He said that they know such opportunities are rare in any economic climate and might not become available again for another decade or generation . Couwenberg shared , “ We are still consummating transactions at all-time highs for these quality businesses .” Further , he said regional dealers are actively pursuing local acquisitions that “ seamlessly integrate into their portfolios ” allowing for shared expenses across multiple locations .

Couwenberg ’ s colleague , Jesse Stopnitzky , cautioned that today ’ s climate is a single moment in time , and not a reliable predictor of the future . As with the stock market , he said it ’ s futile “ trying to time ” the buy-sell market if you ’ re thinking of exiting . “ Selling a business is a complex , emotional decision that may require group consensus ,” observed Stopnitzky . He continued , “ It shouldn ’ t be driven solely by market conditions . The right time to exit is when it ' s right for you and your family , and when it accomplishes your business and personal goals .”

Economic impact on marine dealers

My colleague , Anthony Nasca , CEPA , Financial Advisor , Financial Planning Specialist and Certified Exit Planning Advisor with the Stanek Group at Morgan Stanley , said he suspects we ’ re close to the top of the Fed ’ s rate hiking cycle and we could start seeing cuts within a year . While that bodes well for the economy , he cautioned dealers not to expect an immediate pivot into growth mode since interest on floor plans and consumer lending is still high . If you are considering an exit near-term , Nasca states you must ask yourself the following : 1 . What is my business worth today ? 2 . What do I expect it to be worth in the next two to three years ?

3 . Is it worth the time and stress of waiting to pursue an exit in the future when the economy might be the same several years down the road ?

Prepping for sale

First , Nasca said you need a professional opinion of value so you can make reliable projections about your financials and business valuation several years down the road . Next , assemble a dedicated team of advisors – attorney , CPA , fi- nancial planner , and business broker -- to protect your best interests . Ideally , Nasca advises , your advisors should have experience in the marine industry and with buy-sell transactions . “ This will reduce the risk of a confidentiality breach and help you maximize your performance ,” he said . “ Remember , the selling process typically takes four to six months and it can be overwhelming . To expedite the process , make sure you have ALL of your affairs in order before you go to market .” Nasca recommended engaging a CPA to prepare or review your financial statements , as it gives buyers an extra layer of confidence when they review your financial data .

Our marine professional suggested focusing on improving areas of your business that are most likely to move the needle . Take F & I for instance . While F & I numbers have recently gone down , F & I remains a viable income source . “ I ' m still surprised by the number of dealers that don ' t go after F & I . Dealers at the top end of the market are doing 4 % and 5 % in F & I on new and used sales with an average closer to 1.5 % to 2.5 %." He said a range of 2 % to 3 % on new and used sales is “ very doable ” after paying compensation to a source for F & I management .

It ’ s also important to look at cash on hand . Our panelist advises dealers to have three months ’ worth of expenses in cash or cash equivalent to take them through the winter months . “ You want to try to get two or more turns on your new inventory and four turns or more on your used inventory . Especially when you get in season , if you have fewer than four turns , you ' re probably missing sales .” He went on to say that you also want to focus on parts and service . When sales slow , parts and services go up in relation to new and used sales . This is because people repair their boats and keep them another year or two . He also said to make sure you ’ re

10 may 2024 www . boatingindustry . com