‘Bigger Is Better’: At a Time of Unprecedented Competition, Smaller Auction Houses Are Merging to Stay in the Game
The mergers of Leslie Hindman Auctioneers and Cowan's Auctions, as well as Rago and Wright, offer a hint of what's in store for the industry.
“Bigger is better. It’s just smart to grow.”
This statement might sound as if it were trumpeted from the stage of Davos by the head of a financial services firm or an energy company. But instead, it comes from auctioneer Leslie Hindman, the former president of the Leslie Hindman Auctioneers in Chicago and now board chairman of Hindman Auctions. Her 37-year-old auction house merged this past January with the Cincinnati-based Cowan’s Auctions, founded in 1995.
Hindman is not alone. At a time when the long-dominant auction houses—Christie’s and Sotheby’s—are expanding their digital reach and investment in the middle market, smaller businesses feel they must take dramatic steps to remain competitive. And for some, that means consolidation.
“You do better when you’re bigger,” Hindman says. “It’s easier to compete when you’re bigger.” In fact, the merger with Cowan’s may be just the start. “We’ve been talking with other auction houses about merging,” she says, noting that she has her eye on companies on the East Coast. “In the next couple of years, I think we’re going to be a very different company.”
That same thinking also led Wright Auctions in Chicago to merge with Rago Arts & Auction in Lambertville, New Jersey, last month. Richard Wright, the founder of the 19-year-old Wright Auctions, claims that “scaling our expertise, marketing, consignments, and revenues is integral to our efforts to compete in the 21st century.”
How to Compete
To be sure, these businesses are nowhere near the multibillion-dollar behemoths that are Christie’s and Sotheby’s. Leslie Hindman Auctioneers’ annual revenue was $40 million in 2018, and the new entity now will have combined earnings of $65 million. Wright, meanwhile, generated $25 million in revenue in 2018 and Rago, $33 million; together, they expect to generate $58 million.
But both Hindman and Wright note that the mergers will permit economies of scale (together, they will save on shipping, printing catalogues, advertising, and marketing) and both anticipate greater revenue due to their expanded market reach.
“As a merged company,” Wright says, “we’ll be higher up on the list for potential consignors. And, with more and higher quality material, our prices should increase as well.” David Rago, now president of the merged company, says that “we think the businesses together are worth much more than the sum of our parts.” Both Hindman and Wright predict they will generate revenues of $100 million annually within five years.
Sure, a pair of auction-house mergers within one year may not look like a wave. But these consolidations reveal challenges that other regional auctioneers, not to mention other small art businesses, will invariably find themselves facing as they look ahead—and present possible solutions.
Wright, now the chief executive officer of the two auction houses that has yet to settle on a new name, predicts “a ruthless winnowing” of the thousands of small and regional auction houses taking place in the coming years, resulting in “aggregation in the auction field.”
These businesses are facing significant headwinds: First, the internet has made it easier to buy and sell through a global platform than a regional auction house within driving distance. Christie’s and Sotheby’s are also “becoming very aggressive in their digital strategy,” Wright notes. “They are doing 200 more sales a year of the kinds of lower-priced lots that used to go exclusively to the smaller auction houses. They will take away consignments from everyone else.”
Christie’s and Sotheby’s also have far better known brands—and more than 200 years of history behind them. “People think that their brand will lead to higher prices,” Wright notes. The way to counter that, he argues, is to have more locations and more personal service that isn’t available through digital channels.
Merging as the Future?
Over the years, many of these smaller and regional companies have opened a growing number of offices and salesrooms around the country, such as Skinner Auctioneers, which now has four offices (two in Massachusetts, Boston and Marlborough, as well as one in Miami and New York City), Cowan’s (eight satellite offices), Doyle New York (eight offices), Leslie Hindman (10 offices) and Heritage Auctions (seven offices).
But as these expansions become costly to maintain, mergers may become the business model of the future. Combining forces not only makes a competitor into an ally but also transforms them into fuller-service auction houses that can handle a wider range of material. “Wright does a better job of presenting and marketing modern design than Rago does, even though for my company design represents more than half of our total business,” Rago notes. “On the other hand, Rago is a full-service auction company and we were confident that we could offer Wright a chance to move into more traditional areas that could drive market share.” Similarly, Leslie Hindman Auctioneers found Cowan’s offered largely complementary areas of expertise, including firearms and militaria as well as art of the American west.
Another driving force behind the consolidation of small and regional auction houses is actuarial. Many of these businesses are still led by their original founders, who may be looking to retire. “The options for smaller auction houses are to merge, to sell, to take on capital, or to have a succession plan in place,” says Laura Doyle, who became CEO at Doyle New York earlier this year, replacing her mother, who became chairman of the board.
Mergers have benefits, she notes (“you are partnering with someone who understands the business you are in”), but potential drawbacks if the cultures of the two businesses do not mesh well. Finding a buyer may not be easy, and taking on an investor may lead to “pressure to scale quickly.” In some cases, it may be easiest to groom children to take over. Gene Shannon, founder of the Milford, Connecticut-based Shannon’s Auctioneers, notes that he and other smaller auction houses “are fighting against the 800-pound gorillas in New York”—but he turned that fight over to his daughter, Sandra, in 2014.
Still, for those without an heir apparent, mergers are likely to become increasingly common. David Rago noted that a factor in his company’s merger with Wright Auctions is “a generational thing. I’m 65, and in five years I don’t want to still be doing this. Richard is younger, and we need to have more younger people in charge.”
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