IRVINE, Calif.--(BUSINESS WIRE)--The auto dealership buy/sell market continued its high level of activity, fueled by a healthy economy and an increased pool of sellers reacting to auto retail’s future, according to The Blue Sky Report’s® First Quarter Report released by Kerrigan Advisors.
Fresh investment and capital from new players, including international buyers, kept the pace at a high level – though down from last year’s peak, says The Blue Sky Report. The continued steady pace of a 17 million SAAR, compounded by pressure on dealership profits and emerging changes to the dealership business model, have essentially defined the market into two camps: buyers who have outside capital or resources to embrace and drive change, and sellers who are increasingly reliant on OEM incentives for profitability, and are concerned about how coming changes will impact generational succession plans.
Among the most noteworthy transactions underscoring this trend is AutoCanada’s acquisition of Kerrigan Advisors’ client Grossinger Automotive Group (#95 on Automotive News’ Top 150 Dealership Group List). The Grossinger transaction was the largest transaction ever made in auto retail by a non-U.S. company.
“As with 2017, we’re continuing to see the economic benefits of consolidation, and how that’s attracting new buyers to auto retail,” said Erin Kerrigan, managing director of Kerrigan Advisors. “There is also a rising interest by many dealers in selling. In particular, smaller dealership groups, who are struggling to maximize profit through economies of scale, are concerned about the viability of their family business for future generations. These dealers would rather sell now when values are high then risk the unknown.”
This cautious approach to unknown factors has also changed the way buyers are approaching the market. While the past saw them base valuations on future potential earnings, today’s focus is on current performance. “In the last decade, buyers mostly priced acquisitions based on expected pro forma earnings post-transaction,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors. “With industry sales slowing, however, many are now unwilling to base their purchase price on what a dealership could do. They are focused on what the dealership is currently doing in terms of profit. That is what drives value today.”
The Blue Sky Report, published by Kerrigan Advisors, is the auto industry's most comprehensive and authoritative quarterly report on dealership M&A activity, as well as franchise values. It includes analysis of all transaction activity for the quarter, and lays out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments.
Blue Sky Report data and analysis from the June Quarterly Report includes:
- Actual transactions declined quarter over quarter, but the number of franchises represented in each transaction increased by 45%. As a result, the total number of franchises sold in the quarter remained on pace with 2017.
- Multi-dealership transaction activity increased 27% in the first quarter of 2018, compared to 2017. Kerrigan Advisors expects the pace of multi- dealership transactions to remain high in 2018.
- Among franchises being acquired, domestic franchises (44%) maintained their leading position with the highest buy/sell market share, followed by import non-luxury franchises (40%) and import luxury franchises (16%).
- Import franchises had the highest turnover rate– a reflection of high buyer demand and low franchise supply. The supply/demand imbalance of many import franchises also results in higher blue sky values and multiples.
- U.S. public auto retailers’ U.S. acquisition spending increased 62% in the first quarter of 2018, compared to Q1 2017. At this spending level, public retailers are tracking towards over $1.5 billion of U.S. acquisition spending in 2018, a level that would exceed 2014’s peak level.
- Private buyers, however, continue to dominate buy/sell markets with almost 80% of franchises. Private buyers are accessing debt and equity capital to finance their growth and compete with the publics for sizable acquisitions.
The report identifies three key trends shaping 2018 and into 2019:
- Private dealers partner with outside capital to finance growth plans
- Public dealership groups become increasingly acquisitive
- Buyers focus on current performance rather than pro forma when pricing blue sky
“Kerrigan Advisors sees movement toward increased consolidation in auto retail, as well as continued increase in capital investment from outside the industry. Buyers are excited by the long-term opportunity and healthy pace of the current market, and see it as a chance to increase investment,” added Erin Kerrigan. “At the same time, we expect this shift toward economies of scale, coupled by current high values, to entice smaller dealership groups to sell as part of their estate planning.”
The Blue Sky Report®, a Kerrigan Quarterly, is published four times a year and includes Kerrigan Advisors’ signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. To preview and download The Blue Sky Report, click here.
Kerrigan Advisors also releases a monthly index, The Kerrigan Index™, composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail. To access The Kerrigan Index™, click here.
Erin Kerrigan is Founder and Managing Director of Kerrigan Advisors, and is a recognized industry expert on dealership valuation, real estate and buy/sells. A sought-after commentator on automotive retailing topics ranging from consumer auto buying trends to auto retail consolidation to private equity in auto retail, she has keynoted numerous automotive conferences and her analysis has appeared in publications such as Automotive News, CNBC.com, and the Wall Street Journal. For a recent video of Erin’s commentary on the market, click here.
Ryan Kerrigan is Managing Director of Kerrigan Advisors and an expert on US auto retail buy-sell transaction work. Prior, Ryan served as Managing Director at Serent Capital, a $250MM private equity fund investing in middle market companies and served as General Manager of the family’s auto dealership. Mr. Kerrigan began his career as a management consultant at McKinsey & Company, where he advised Fortune 500 companies on growth strategies, organizational issues, pricing and business valuation. For a recent video of Ryan’s commentary on the market, click here.
About Kerrigan Advisors
Kerrigan Advisors is the leading dealership buy/sell advisory firm focused on providing a high level of client service for dealership sellers nationwide. Led by a team of veteran advisors, Kerrigan Advisors customizes each sale process to maximize the seller’s transaction proceeds. The firm has sold 71 dealerships since 2015, including five of the Top 100 Dealership Groups in the U.S. With the most comprehensive buyer database in the industry, Kerrigan Advisors has the industry context and expertise to match every seller with the right buyer. In addition to Kerrigan Advisors’ sell-side transaction work, the firm also provides a suite of consulting services including accounting preparation for sale, litigation support, open point applications and transactional due diligence.
In addition to the monthly Kerrigan Auto Retail Index, each quarter, Kerrigan Advisors publishes The Blue Sky Report®, a Kerrigan Quarterly, which is the auto industry's most comprehensive and authoritative quarterly report and analysis of dealership buy/sell activity and franchise values. Kerrigan Advisors’ Managing Director, Erin Kerrigan, is a recognized industry expert on dealership valuation, real estate, and buy/sells, and is a frequent speaker at leading auto retail events and conferences, including NADA, JD Power Automotive Roundtable, AICPA, NADC, and Driving Sales’ President’s Club. She has also been a keynote speaker for events hosted by American Honda Motor Company, Audi of America, US Trust, Ohio Automobile Dealer Association, and SunTrust Bank and has led webinars for NADA and Automotive News. Kerrigan Advisors’ Managing Director Ryan Kerrigan is also a sought-after industry expert. He is featured in a monthly column for Dealer Magazine and has written Op-Eds for Automotive News, among other outlets.
