The Consolidators

Knowing how things work is not the same as making them work.

This past summer I began to get phone calls from consulting companies, bankers, brokerage houses and others interested in the powersports industry. This time, however, it appears they have become fascinated with the potential of becoming dealership consolidators. They want to know how it works, how the OEMs feel about it and how successful they might be.

Several things are happening to bring them to the surface. First, many dealers who began their businesses decades ago are now considering selling their companies. Next, sales of a big player, Harley-Davidson, slowed this summer, leaving some dealers with more inventory than they’ve had in years. Many back east panicked and resorted to deep discounting. After all, they had weeks of rain and just about lost the entire spring season. These conditions led the investment people to think some of these stores may be for sale at an attractive price. Another motivator is the change brought about by America’s PowerSports. One of the early consolidators, APS took chances and succeeded, albeit with some very strong resistance from the OEMs.

About a decade ago, Wind Point Partners, a private equity investment firm, got into the motorcycle business by hiring the past president of Mazda, Clark Vitulli. Clark established APS and set about buying up dealerships with gross sales in excess of $10 million. Things didn’t go smoothly as the OEMs fought to keep consolidators out. Some simply cancelled the franchise agreements with the shops who wanted to sell to this upstart consolidator. Others went to court.

Time passed and the OEMs began to see that the consolidators were making inroads by managing their acquired dealerships very professionally. "Best practices" were put into place. The newly acquired dealer’s DMS systems were replaced with more comprehensive systems capable of handling multiple stores, since the consolidator needed to tap into the dealers’ systems to guide them on a day-to-day basis.

The newly acquired dealers’ net profits grew. The consolidators were winning although at a considerable cost. Obviously, not all of them were winners. Some who attempted to replicate APS’s success failed, while others developed different models and showed some relative success. But the market continues to change. For reasons I’m not privileged to know, Clark Vitulli resigned his position as president of APS and to the best of my knowledge, has not resurfaced in the powersports industry. That’s unfortunate. I admire Clark as a person, a gentlemen and as one of the best businessmen in our industry.

Meanwhile one previously low-profile consolidator has kept plugging away. His name: Mark Tkach. To date Mark’s RPM Group has acquired 30 some-odd stores, with more on the way. So what’s the difference between Tkach and the other consolidators? He has been there and done that. Mark started his first store back in 1983. He is an enthusiast, but he has learned the secret of working on, rather than in the business. That’s something few others have learned. He also purchased the 20-Clubs previously run by Lemco.

Now Mark has come to the attention of Wall Street, brokers, investors, moneyed entrepreneurs and others who believe they can replicate what he’s done. They have the mistaken idea that it’s easy, and all that they need to get into this market is money.

Mark told me that he has been getting several calls a month from investors asking if he’s interested in selling his store. It’s obvious they have no idea who he is or that he has 30+ stores. I guess when they discover their error, there must be some very red faces in their ivory towers?

Because I have a relatively high profile among dealers and OEMs and have written a couple of books about the powersports industry, many of these non-motorcycle consultants, investors and brokers have been calling for information. I find it interesting that so many expect me to tell them everything they want to know and stay on the phone with them for hours for nothing! I have to tell them that it doesn’t work that way.

Once I inform them that I charge $250 per hour for telephone interviews, they become less interested in my services. I then direct them to the www.myob-2.com website and suggest they might find what they’re looking for there. Still they call back a few weeks later and try to get me to share more information with them.

I have a problem with non-motorcycle people who think they are entitled to information just because they are interested in getting into this business. Many have told me they have tens of millions of dollars to invest and just need to know "a few" facts about the business, and that they’d be so grateful if I’d just answer a few questions. I tell them that my education was not free, and their’s won’t be either. Funny, they don’t seem to get it.

Knowing how things work is not the same as making them work. For example, someone can do all the reading necessary to learn how to fly a single-engine airplane. They can learn all the rules and understand all the facets of aviation theory. I still wouldn’t go with them on their first flight based on what they theoretically know. Neither would you!

It would appear that the romance of motorcycles is getting to Wall Street tie-wearing, numbers-crunching geeks. They long to be a part of what we are. However, it doesn’t work that way. The reason our industry continues to grow is that the vast majority of dealers speak the same language as their customers. They enjoy the same things and have that one very valuable ingredient: passion. I don’t think "passion" and "banker" or "investor" can be used in the same sentence.

Perhaps we make it look too easy? Just like Tiger Woods makes golf look easy and a tightrope walker makes that look easy, too. Anyone who’s been in the motorcycle business for more than a few months knows one basic thing — it ain’t easy! It takes concentration, imagination and hard work!

As they continue to call and as I continue to tell them what it will cost them to interview me, I’ll continue to tell them that that while it looks easy, their chances for success are very small. No, they won’t believe me and many will invest millions only to find out they don’t speak the language. C’est la Vie.

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