In this episode of Angels, Exits, & Acquisitions, Jeff Barnes chats with Mike Allen, Managing Director of Cambria Private Capital, and from Wales Private Holdings and Wales Auto Group in the UK. With a background in mergers and acquisitions, IPOs and de-listing companies Mike has a wealth of knowledge. He started in 2001 at UBS Global Asset Management during a very tough time, the dot com bubble burst and 9/11. Despite the challenges Mike saw opportunity in the automotive sector, particularly car dealer groups, they had asset backing, understandable margins and a fragmented market that was ripe for consolidation. His experience working with companies like Pendragon, Reg Vardy and CD Bramall makes him a must listen for anyone looking to get into automotive investment.
Watch the full episode in Angels, Exits, & Acquisitions podcast.
Why the Automotive Industry is Still a Good Investment
The automotive industry has always been attractive. As far back as 2001 people were saying the rise of the internet would kill off traditional car dealerships. But this industry has proven itself time and time again to be resilient and full of opportunities for investors.
Why is automotive a good investment?
Tangible Assets: Unlike many tech businesses car dealer groups own significant property and physical assets, a tangible base for their business and a safety net for investors.
Simple Business Model: The automotive industry, particularly dealerships, has a simple business model with established revenue streams and understandable margins. This means investors can get a better view of potential returns than in industries with complex or changing business models.
Consolidation: The market is fragmented, with a mix of national chains and independent dealerships. This fragmentation means consolidation opportunities where larger players can buy smaller ones to increase market share and scale.
Beyond the Showroom: Investing in Automotive
While the traditional parts of the automotive industry like dealerships are strong, technology has opened up new and exciting investment opportunities. Savvy investors are looking beyond the bricks and mortar to explore the opportunities in:
Autotech Startups: Companies like Bumper who recently raised Series B funding from Autotech Ventures are using technology to change various parts of the automotive industry. Whether it’s streamlining the repair process, enhancing customer experience or improving operational efficiency these startups are attracting big investment as they solve the evolving needs of the sector.
IPOs in the Automotive Sector: The University Car Sales IPO raising £1 million shows investors are looking for automotive businesses that use technology. This proves investors are not just looking for exposure to the traditional automotive model; they are looking for companies that are innovative and use technology to drive growth and efficiency.
Investing in Automotive: A Long Term View
Investing in the automotive market requires a strategy that goes beyond the short term. Both traditional and tech focused automotive investments benefit from a long term view:
Market Cycles: The automotive industry is cyclical, driven by economic conditions, consumer behaviour and technological change. Successful investors understand the cycles and have strategies to weather the downturns and capitalise on the upturns. They don’t react to short term fluctuations and focus on the long term potential of their investments.
Embracing Change and Innovation: The future of the automotive industry is technology led. Investors who get this and invest in companies that are innovative, whether in manufacturing processes, customer experience or new business models are better placed. Those who stick to the old model will be left behind as the industry changes.
The Ingredients of Success: A Strong Team and Mindset
Investing in any industry, especially automotive, is about more than just finding a good company or trend. It’s about building the right team and having the right mindset for long term growth and value creation.
Experienced Operators: Businesses thrive under the leadership of experienced operators. In the automotive sector this means finding operators who understand the market, have a track record of success and can navigate the complexities of manufacturing, sales and distribution. Being able to build and manage a high performing team is key to operational success.
Visionary Leaders: While operational expertise is important, it’s equally important to have leaders with a clear vision for the future. The automotive industry is changing fast and leaders who can see and adapt to those changes will guide their companies to success in the new landscape. They need to be able to inspire their teams, attract top talent and make strategic decisions that align to long term goals.
Financial Acumen: A strong finance team is the backbone of any business. In the automotive industry where capital investment is big, a finance team with skills will ensure efficient resource allocation, manage cash flow, identify risks and opportunities. They will secure funding, negotiate deals and maximise returns for investors.
Beyond Capital: The Power of Partnership in Automotive Investment
Successful automotive investment is often about more than just providing the capital. Active involvement and collaboration between investors and the companies they invest in can be the drivers of growth and value creation.
Partnership in automotive investment means:
Mentorship and Guidance: Experienced investors have a wealth of knowledge and experience that can be invaluable to growing automotive businesses. Sharing this expertise through mentorship and guidance enables company leaders to navigate the challenges, avoid the pitfalls and make informed decisions. This hands on approach creates a collaborative environment where both parties work towards the same goal.
Industry Connections: Experienced investors have a wide network of contacts in the automotive industry. Connecting the companies they invest in to manufacturers, distributors, retailers and technology companies can open doors to new opportunities, partnerships and growth. These connections can help overcome obstacles and scale faster.
Keeping Up to Date: The Trends in Automotive Investment
The automotive industry is changing fast, there are opportunities and challenges for investors. Keeping up to date with the trends is key to making informed investment decisions:
Electric Vehicles (EVs): The global move to electric vehicles is changing the automotive landscape. This shift creates investment opportunities in battery technology, charging infrastructure and new automotive business models. Investors are watching companies developing and manufacturing EVs and those providing the infrastructure and services.
Autonomous Driving: Autonomous driving technology will change transportation. Fully autonomous vehicles are still some way off but investors are looking for companies developing the underlying technology – sensors, artificial intelligence and mapping systems. Early investments in this space will pay off as the technology matures.
Supply Chain Resilience: Recent supply chain disruptions have shown the importance of diversification and resilience in automotive investment. Companies that can adapt to supply chain challenges, get access to critical components and navigate geopolitical risks are better positioned for long term success. Investors are looking for companies with a robust supply chain strategy and focus on mitigating disruptions.
Due Diligence: Things to Consider Before Investing in Automotive
Due diligence is key before investing in any automotive company. A full due diligence involves:
Team: The management team’s track record and experience is a key factor in evaluating the potential. Have they done it before in the automotive industry? Do they have the skills and experience to navigate the market? Investors should look for teams with operational experience, industry knowledge and leadership skills.
Market: Understanding the size and growth potential of the market is key to the opportunity. Is there a clear and sustainable demand for the company’s products or services? Investors should look at market trends, competitive dynamics and regulatory factors that will impact future growth.
Financials: A close look at the company’s financials is needed to evaluate profitability, cash flow and overall financial health. Investors should look for revenue growth, healthy margins and responsible debt. Understanding the company’s financials is key to evaluating the risk and return on investment.
Competition: Understanding the competitive landscape is key to a company’s ability to succeed. How does the company differentiate itself from the competition? Does it have a sustainable competitive advantage in terms of technology, brand, cost structure or distribution channels? Investors should look at the competitive landscape to see if the company can take market share and make long term profits.
Investing in the Automotive Market: How to Succeed
Investing in the automotive industry is tough but with the right approach it can be very rewarding.
Here are the key takeaways for successful automotive investment:
Embrace Technology: The automotive industry is going through a technological revolution. Investors who embrace this change and invest in companies that are using technology to innovate, improve efficiency and enhance customer experience will be better off.
Focus on Fundamentals: While technology is important, the fundamentals still apply. Look for companies with good management, solid financials, a clear competitive advantage and a long term vision for growth. Don’t get caught up in the hype; look for companies that can execute their strategy.
Spread Your Risk: Diversification is still key to good investing. Spread your investment across different parts of the automotive industry, such as traditional manufacturing, auto tech and supporting infrastructure to reduce risk and increase returns. Look at a mix of early stage and mature companies to balance risk and reward.
Invest in Automotive: Join the Angel Investors Network
The automotive industry has many opportunities for smart investors. By understanding the trends, doing your due diligence and leveraging the power of partnership you can succeed in this sector.
To learn more about automotive investment check out the resources on the Angel Investors Network. These will give you valuable information, guidance and connections:
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