Navigating acquisition financing strategies in today’s dealership market

As dealership consolidation continues across the automotive retail industry, acquisition financing has become an increasingly important strategic consideration for dealer groups looking to grow. While the availability of capital remains strong, today’s financing environment is more nuanced than ever, requiring operators to balance flexibility, leverage, risk management and long-term scalability.

In this month’s episode of Up to Speed, Mike Mader, Principal with Baker Tilly’s dealership advisory services team, is joined by Davidson Hall, Managing Director and Head of Leveraged Finance at Stephens, Inc., to discuss the evolving landscape of acquisition financing in the dealership buy-sell market. Their conversation explores the financing strategies and capital market trends shaping dealership mergers and acquisition (M&A) landscape today.

From traditional bank lending to private credit and preferred equity structures, dealership groups now have access to a broader range of acquisition financing solutions than at any point in recent years. Understanding how lenders evaluate transactions and which financing structures best support long-term growth can provide operators with a meaningful competitive advantage in the buy-sell market.

Strong capital availability continues

Despite broader economic uncertainty and shifting interest rate conditions, acquisition financing remains widely available for dealership operators. Banks, institutional lenders and private credit providers continue to view the dealership sector favorably due to its long history of resilience through economic cycles.

Lenders generally see dealership groups as stable businesses with strong cash flow potential, diversified revenue streams and valuable underlying real estate assets. Even after periods of rising interest rates and consumer spending pressure, many capital providers remain highly interested in financing automotive retail acquisitions.

However, acquisition financing availability often depends on several factors, including:

• The size and scale of the dealership group
• Geographic market strength and demographics
• OEM mix and franchise quality
• Historical operating performance
• Existing leverage levels
• Management experience and succession planning

Top-performing dealership groups with established platforms and strong regional presence typically receive the most favorable financing terms and the broadest range of lender interest.

Banks remain aggressive but selective

Traditional banks continue to play a leading role in dealership acquisition financing, particularly for larger operators. Relationship banking remains especially important in the dealership industry, where lenders often consider not only acquisition financing needs but also floorplan lending, treasury management, real estate exposure and private wealth opportunities.

Many regional and community banks remain highly competitive in the space and are often willing to structure creative solutions for long-standing dealership clients. At the same time, consolidation within the banking industry has led some institutions to reevaluate sector exposure limits, occasionally creating tighter underwriting standards in certain markets or franchise categories.

While credit standards have not tightened significantly across the board, lenders are placing greater emphasis on operational scale and portfolio quality. Dealership groups with strong management teams, diversified OEM representation and a presence in growing metropolitan areas continue to attract aggressive financing offers.

Private credit expands its role

One of the most notable developments in dealership acquisition financing is the growing role of private credit and non-bank lenders.

Private capital providers have become increasingly active in automotive retail transactions, particularly when flexibility and speed are priorities. Unlike traditional banks, private credit firms often operate with fewer regulatory constraints, allowing them to structure financing solutions that better align with complex acquisition scenarios.

Private lenders frequently provide:

• Higher leverage levels
• Flexible amortization schedules
• Delayed principal payments
• Preferred equity investments
• Subordinated debt structures
• Faster approval and execution timelines

This flexibility can be particularly valuable during transformational acquisitions, integrations or turnaround situations where preserving cash flow is critical.

For example, private lenders may allow zero amortization periods during the first year of ownership while a dealership group integrates acquired operations. Traditional banks often struggle to offer that level of flexibility due to regulatory oversight and internal committee structures.

Although private credit generally carries a higher cost of capital than bank financing, many operators view the added flexibility as a worthwhile tradeoff, especially when pursuing high-growth opportunities.

Blue sky financing remains transaction-specific

Blue sky leverage continues to be one of the most closely watched areas in dealership acquisition financing. Lenders evaluate blue sky financing based on several transaction-specific considerations, including:

• Franchise desirability
• Market demographics
• Existing dealership performance
• Acquisition scale
• Operator track record
• Regional concentration and market share

Highly desirable OEMs located in strong, growing metropolitan statistical areas (MSAs) often command more aggressive leverage multiples. Conversely, underperforming stores, less desirable brands or heavily regulated markets may result in more conservative financing structures.

Importantly, lenders increasingly evaluate acquisitions within the context of the buyer’s broader platform rather than solely on the performance of the target store itself. Large dealership groups with proven operational capabilities can often receive credit for anticipated post-acquisition improvements, particularly when acquiring underperforming stores with turnaround potential.

This platform-based underwriting approach has become increasingly common as dealership groups pursue larger, more strategic acquisitions.

Flexibility often matters more than pricing

While interest rates and borrowing costs remain important considerations, many sophisticated operators are prioritizing financing flexibility over simply securing the lowest possible rate.

In acquisition scenarios, operational flexibility can significantly impact long-term success. Covenant headroom, distribution flexibility and amortization terms may ultimately prove more valuable than marginal pricing differences.

Higher- leverage transactions, especially those involving integration risk or operational turnarounds, often require lenders willing to accommodate short-term volatility while management executes its strategy.

As a result, many dealership groups are carefully balancing traditional bank debt with private capital solutions to create financing structures that support both operational stability and future growth.

Real estate continues to play a critical role

Real estate remains one of the most valuable financing tools available to dealership groups.

Many operators utilize equity trapped within dealership real estate to support acquisitions and expansion strategies. Sale-leaseback transactions, real estate refinancing and cross-collateralization structures continue to provide additional liquidity options for growing dealer groups.

However, as real estate exposure increases within dealership lending portfolios, some lenders may eventually face concentration limits tied to specific asset classes. Operators relying heavily on real estate-backed financing may need to diversify funding sources over time.

Financial infrastructure is becoming more important

As acquisition financing grows more sophisticated, lenders are placing greater emphasis on financial reporting quality and operational infrastructure. Many lenders now expect:

• Reviewed or audited financial statements
• Dedicated CFO leadership
• Enhanced internal controls
• Professionalized reporting systems
• Institutional-grade financial transparency

Dealership groups that invest in stronger financial infrastructure often gain access to a wider range of capital providers and more competitive financing structures.

For some operators, improving financial reporting and governance may become one of the most important strategic investments they can make in preparation for future acquisitions or succession planning initiatives.

The industry’s next wave of consolidation

Looking ahead, generational transition may become one of the largest drivers of dealership M&A activity.

Many franchise dealerships remain family-owned businesses now entering second-, third- or even fourth-generation ownership transitions. In some cases, younger generations may choose not to continue operating the business, creating acquisition opportunities for larger consolidators and well-capitalized dealer groups.

As that transition accelerates, acquisition financing will remain central to how dealership groups scale, compete and position themselves for long-term success in an evolving automotive retail landscape.