By Alysha Webb, Editor and Publisher
As the cost of buying a dealership rises, a group of highly qualified potential buyers are being priced out of the market. Dealers and general managers who desire to buy a dealership or a platform of dealerships for expansion or succession goals are unable to structure traditional financing to successfully execute their target acquisitions.
A new company aims to fill that need. Capital Automotive Financial, or CAF, will provide long-term flexible equity capital to qualified dealers and general managers in the retail automotive sector seeking to acquire a dealership or multiple franchises for expansion and or succession goals.
“Our goal at CAF is to deploy capital along-side car dealers that have a long track record of successfully running retail automotive dealerships,” Richard Kotzen, president and CEO of CAF, tells Automotive Buy Sell Report.
CAF will provide leading dealers, general managers, and chief operating officers with equity capital with a long-term outlook. The dealers or general managers whom CAF partners with can take a minority or majority partnership interest in the dealership. He or she will have a contractual option to a clear path to 100% ownership.
“We believe this ability to buy out right is unique,” says Kotzen. “Also, our capital can stay in place longer than the traditional private equity or family fund structures.”
The dealer will also have the option to continue to use CAF flexible equity capital to expand their dealership platform, thus providing brand diversification in the group’s geographic region. Brand diversification is a critical factor of being competitive in today’s dealership environment.
Kotzen, one of CAF owners and a former Partner in the CPA Firm of Crowe Horwath Retail Dealership Group, leads a team at CAF of professionals with long term retail automotive experience.
CAF has partnered with Two Sigma Private Investments, that currently manages over $35 billion in assets. Two Sigma has abundant access to capital. The third partner is Capital Automotive Real Estate Services, or CARS, which has been in financing automotive real estate for nearly 20 years. CARS currently owns approximately $5 billion of retail automotive facilities.
The time is ripe for a firm offering this kind of flexible long term equity capital, says Kotzen.
“A number of car dealers need equity capital to grow and CAF will be there to assist those dealers who are seeking to expand through brand diversification and or grow as part of a succession plan,” he says. “Unless dealers have significant equity to invest it will be difficult, to remain relevant in today’s market place as valuation costs rise.“
CAF is brand agnostic, as long as it can achieve its investment threshold, he says. CAF is targeting to achieve levered returns “north of 15 percent.”
CAF is open to any geographic location, so long as the investment criteria are met. “In some of the secondary markets, you can find more opportunity and returns than in the major metro markets,” says Kotzen.
Management is also a key element in deciding whether CAF will work with a partner candidate. CAF will provide its dealer partner with operating control.
“We are not going to hire an entire staff to run the dealerships. That will be the role of our dealer partner,” says Kotzen.
CAF is striving to modernize the OEM’s dealer development programs of the past, he says.
So far, most of the dealer partner candidates which CAF has been working with have been developed from existing relationship with Kotzen, CARS, or Two Sigma. However, CAF is looking to engage with other potential partners who meet the CAF partner qualifications, says Kotzen.
Dealer partners are vetted based on a career of successfully operating retail automotive dealerships, meeting the manufacturer approval criteria, possessing a high level of integrity, and “that they will be able operate in a partnership environment with CAF.”
CAF won’t be the right fit for every candidate. “Some dealers or general managers will not have comfort with a partnership structure; however, for those candidates who fit the profile, CAF can be a successful platform to grow the partner candidate retail dealership operations,” says Kotzen.