Published in Finance
Aaron Zeigler, Zeigler Automotive Group. Aaron Zeigler, Zeigler Automotive Group. PHOTO: KATY BATDORFF

For Zeigler, love of dealmaking started early in career

BY Sunday, October 14, 2018 10:07am

WINNER: Dealmaker of the Year, Corporate Executive

Aaron Zeigler fell in love with the car business as a teenager.

Fresh out of high school, Zeigler started selling cars part-time over the summer at his father’s dealership, and the experience convinced him that he wanted to make a career out of it. He loved the art of the transaction, and he was good at it too, quickly becoming the dealership’s top salesperson.

That knack for dealmaking later would prove valuable as Zeigler took over the family-owned Zeigler Automotive Group, which at the time had five dealerships across West Michigan.

Via a string of store acquisitions and the addition of new nameplates in West Michigan, Indiana and Illinois, the Kalamazoo-based Zeigler Automotive Group now ranks 62nd nationally with 15,090 new car sales in 2017 and $1.08 billion in revenue, according to Automotive News.

The company, which employs more than 1,600 people, is tracking toward $1.3 billion in revenue for 2018, thanks to organic growth in its existing markets and a pair of high-profile deals earlier this year in the Chicago area.

One of the deals, for McCarthy Ford in Chicago, came about as a result of some old-school sleuthing. Zeigler smelled an opportunity when he heard the owners of the store, who had been operating it only for about a year and a half, wanted to get out.

“I got a tip, called them up one day, met them the same day at a Starbucks over there, and literally put together a deal in 24 hours. We had a signed buy-sell three days later, and turned it in to the manufacturer. It was the fastest deal I’ve ever done,” said Zeigler, the winner of the 2018 MiBiz Dealmakers of the Year Award in the corporate executive category.

The McCarthy Ford deal, which closed in June, was the company’s first for a Ford dealership since 1995, and positioned Zeigler Automotive with a high-volume store in the western Chicago suburb of North Riverside.

“I had looked at the store a couple years ago, so I knew the market pretty well and was familiar with it, and knew that it’s a great domestic market,” Zeigler said. “It fit in really well location-wise with our other locations in and around Chicago. I’d already done a lot of the pre-work on it from a couple of years ago, so I was able to go on and do things really, really quick on it.”

Aaron Zeigler

President, Zeigler Automotive Group

  • Annual sales: $1.08 billion in 2017, tracking to $1.3 billion in 2018
  • Total employees: 1,600 across West Michigan, northern Indiana and Illinois
  • Business description: Automotive dealership group that operates more than two dozen stores, plus Zeigler Motorsports, a destination motorcycle/ATV store in Comstock Township, east of Kalamazoo
  • Best practices for effective dealmaking: “I typically buy underperforming businesses, and our job then is to get them to perform. The first thing that you have to do is get the culture right, and get the mindset right, and have the right leaders. Typically the reason why something is underperforming is because of the current leadership, so we change up the leadership, put our own leadership team in, and then build from there. It’s really duplicating past efforts. … We basically take our whole group of vendors with us at our other dealerships. When we buy a new dealership, we take out whatever the other dealer’s doing, we put in our own stuff and we do it quickly. You can really turn the dealerships fast, and get them to perform. We’re also only looking for stores that are in bigger markets — so a market that’s either stable or growing — and then stores that are major franchises as well. I’m only looking for those tier-one franchises.”
  • Personal information: Wife, one son, three daughters
  • Academic degrees: Bachelor’s degree in marketing and management from Michigan State University; graduated from the National Automotive Dealer Association (NADA) Academy
  • Advisers: Varnum LLP (legal); Huntington Bank (banking)

While the speed to close was crucial in the McCarthy Ford deal, more often than not, successful dealership transactions hinge on buyers having a strong track record of success in order to win approval from the OEMs, who “control most of the deals,” according to Zeigler.

These days, automakers are exerting more influence over the sale process for dealerships, including blocking family-owned stores from passing on to the next generation in cases when they have concerns over capitalization, past performance or customer service index ratings, among other factors.

“Ten years ago, the manufacturers were the last one to find out about a deal. Today, they’re usually the first one, and they’ll bring the deals to you when they get somebody that wants to sell,” he said. “Typically for dealers that want to sell, they now want to work with the manufacturers because … they want to make sure the manufacturer is going to approve it. It’s better to go to manufacturer first, and say ‘Hey, who would you want to put in there, who would you approve?’ and then work directly with those people.”

Zeigler’s February deal for Grossinger Buick GMC Cadillac in Lincolnwood, Ill. exemplifies the role the OEMs play in the transaction process. General Motors was in the process of buying out the Grossinger family and contacted Zeigler to see if he wanted to take the deal.

“Manufacturers are looking for somebody with a proven track record, and each manufacturer has a team of dealer development people in each one of their regions that have relationships with dealers,” he said. “They’re the ones that are responsible for picking who they would like to have go in, and who they think would be most successful.”

While General Motors paired Zeigler Automotive with the Grossingers for the transaction, the OEM had no influence on deal terms, which the two companies worked out on their own, Zeigler said.

The deal gave Zeigler Automotive a store in the largest market in Illinois for the Buick, Cadillac and GMC brands.

Zeigler Automotive is building out a separate store for the Cadillac brand that will be the first in the country to debut the automaker’s new design language “from the ground up.” As well, Zeigler plans to completely renovate the existing space for the Buick GMC store and bring it up to GM’s current design standards.

The company funded the Grossinger acquisition with the proceeds of a February sale of its Honda dealership in Amherst, N.Y., the first divestiture in corporate history for Zeigler Automotive.

According to Zeigler, the company — which specializes in buying underperforming dealerships — had completed a turnaround of the store’s business, but it remained a bit of a geographic outlier in its portfolio. As well, Zeigler quickly tired of the New York business climate.

“Quite frankly, the state of New York with the taxes out there and the fees that they charge you, it’s a lousy state to do business in,” he said.

When Zeigler decided to start exploring a sale, a public dealership group “made a pretty large offer that I didn’t think would exist, and then a local guy heard about that, and he outbid them.”

Looking ahead, Zeigler sees more opportunity to grow in the company’s core markets of West Michigan and the Chicago area, particularly as aging dealership owners look to sell and as consolidation continues in the industry.

Kerrigan Advisors, a California-based sell-side advisory firm, expects dealership transactions to increase this year following 202 completed deals in 2017. That was down 8.5 percent from 2016, but the fourth consecutive year in a row with more than 200 deals, the advisory firm noted in its annual report.

“We expect 2018 to be a very active year for buy/sells with more private and public buyers eager to put their capital to work. These buyers believe growth is the answer to a changing auto retail environment and are eager to capitalize on economies of scale and scope,” Ryan Kerrigan, managing director of Kerrigan Advisors, said in a statement.

The online shift in consumers’ habits is helping fuel that consolidation because companies that have more stores can show potential buyers a broader array of products and have a better chance of stocking the vehicles they want.

“It’s really hard for somebody that only has one or two dealerships to compete anymore because of the way that the car-buying process has changed,” Zeigler said. “Almost all customers today get online. If you go to our website, I’ve got almost 10,000 cars in stock at any one point, so you’re going to pretty much find something that you want. If a single-point dealer has 200 cars, then it’s a lot harder to do that. Typically … when somebody’s selling out, they’re selling to a company that has multiple dealerships already.

“We’re going to continue to grow where it makes sense. … A lot of people held on during the recession, and the economy’s been very strong here the last couple years, and they’ve done well. But I think there’s also maybe a little bit of pent-up demand, where there’s a very aging dealer body, and you’re going to see a lot of people retiring here in the next five years or so. That’s going to create a lot of opportunities to be able to grow going forward.”

Read 4401 times Last modified on Sunday, 28 October 2018 16:51