Partners, Not Buyers – Family Offices & Dealership Legacy

Family Offices are an increasingly popular option for automotive dealerships seeking partners to support their growth—whether through a minority or majority investment, or even a full sale. In this Capital Thinking segment, Partners, Not Buyers – Family Offices & Dealership Legacy, Mickey McFarlin, Head of Stephens Private Capital Markets, and Joe Mowery, Head of Stephens Automotive Investment Banking, discuss the benefits of Family Offices partnering with dealerships to preserve and enhance their legacy.

Full Video Transcript

At Stephens, our leading dealership M&A practice benefits from the fact that Stephens is a full-service investment bank, giving us some options to provide our clients that are very unique from simply selling a dealership to another private or public dealership.

Joe: So Mickey, as the head of private capital markets at Stephens, can you talk a little bit about the financing options that we can provide our clients?

Mickey: Yeah, sure, Joe. Our private capital markets team covers over a thousand financial investor relationships, including both private equity funds and family offices. And importantly, we have a dedicated practice in supporting and covering family office investors. We founded that practice in 2017, and we touch over 400 family office investors, which we found to be a very attractive source of capital and partnership for our clients.

Private Equity vs Family Office Timelines

Joe: So you talk about both private equity and family offices. Can you talk a little bit about how you differentiate between the two?

Mickey: Sure. Well, private equity funds are typically a little more short-term in their focus. They can invest over a 3 to 7 year time horizon, whereas family offices can be more indefinite in their whole period in partnership.

Family Offices and Dealerships

Joe: And when it comes to dealership clients that we have, which are mostly family-owned businesses, of course, there are some public companies, but most of the people that we're talking to are family-owned dealerships. How can a family office, especially, be a good partner for the owner of a dealership?

Mickey: I think there's a couple ways. One, family offices have seen all the family issues that a family-owned business can have and can be a great partner in that respect. They're long-term investment horizon can be quite attractive as a family's thinking about maybe generational transition. And then the OEMs, the manufacturers that the dealers represent, find the long-term nature of those investors as being quite attractive versus private equity, which may turn over their dealership base a little more quickly.

Joe: What about from a management style perspective? How involved might a family office be in the operations or the day-to-day management of a dealership? How is that unique?

Mickey: Yeah, they're typically going to be a little more passive. They're going to rely on the management team. They're investing behind a great management team and letting them run their business. But they're going to support them with capital and with advice at the board level when necessary and when needed by the family.

Family Office Banking Investment Approaches

Joe: And when it comes to maybe introducing one of our dealership clients to a family office partner or a potential family office partner, our clients always ask us, well, how do they think about valuation? How do they think about return expectations? Can you elaborate on that a little bit?

Mickey: Sure. Family offices are again long-term oriented. That allows them to be long-term in how they think about valuation, which is typically the return on investment over a long period of time. And that return on investment really drives how they apply valuations to the businesses in which they invest, versus more arbitrary blue sky multiples or other industry approaches.

Recent Stephens Family Office Transactions

Joe: So we've been talking in generalities so far in this conversation but we've been fortunate to close some transactions amongst our dealership relationships and the family office relationships and partners that your team brings to the table. Can you elaborate on that a little bit?

Mickey: Absolutely. We've done multiple transactions involving dozens of stores for our dealers who are looking for partners versus buyers. A couple of recent transactions would include: we helped Larry Morgan find investment from Redwood Capital. And then we also helped David Hudson on his deal again with Redwood Capital as a buyer for the business. And both of those businesses have continued to grow quite well, led by both David and Larry and supported by Redwood with capital and advice.

Joe: Yeah, those are great examples, and we definitely feel strongly about family offices as being great partners for our dealer clients, and we look forward to having more of those conversations with you and your team and our relationships as well, Mickey.

Mickey: Same here. I couldn't have said it better myself.