A growing direct investment opportunity for family offices - dealerships

Family offices in the US are buying into auto dealerships as profits grow in the sector and owners are more willing to sell stakes in their businesses.

A San Francisco-based family office called Servco Pacific Capital bought two Harley-Davidson dealerships in Australia last May. SPC is the family office of the Hawaii-based Fukunaga family, which made their money in car dealerships in the US and Australia.

But other family offices not just with a background in dealerships are also getting into the act. In 2016, Fremont Private Holdings, the family office of the US-based Bechtel family, bought Morrie’s Automotive Group from the family who set it up in the 1960s.

These family-based investors might just be influenced in their decisions to invest in the sector because of Warren Buffett

In 2015, a family co-investment team provided financing for the McLarty Automotive Group, an auto dealership business based in America’s Midwest. The dealership was backed by Soros Fund Management, the family office of George Soros, Dale Capital Partners, the investment arm of the Stephen LaFrance family, who made their money in pharmacies, and the investment arm of the J.B. Hunt family, which owns a transport company.

These family-based investors might just be influenced in their decisions to invest in the sector because of Warren Buffett. The sage of Omaha now owns one of the biggest auto dealerships in the US after Berkshire bought the Van Tuyl Group in 2015. At the time, the Van Tuyl Group was America’s biggest privately owned automotive dealership group

Profits in the sector have more than doubled since 2010, according to Automotive News. And dealership owners have become more willing to sell stakes in their business as they move towards retirement and look for outside investors to de-risk their companies.

Many dealerships throughout the world are also family owned, often run by second, third, and even fourth generations of the same family. This gives an added incentive for family-backed investment groups to take a stake in these businesses. Many of them, like Servco Pacific Capital, are willing to make long-term investments in these businesses, which goes down well with their founders.