From acquisitions to shifting consumer preferences, in today’s episode of Inside Automotive, we’re discussing factors driving M&A activity as highlighted in The Blue Sky Report, published by Kerrigan Advisors. Joining us now is Ryan Kerrigan, Managing Director of Kerrigan Advisors.
1. Despite record profits in the U.S. automotive retail sector in recent years, there has been a notable trend of international acquisitions by U.S. auto retailers. This includes major deals such as Group 1′s purchase of Inchcape Retail in the UK, reflecting a shift towards better deals and opportunities in Europe due to headwinds.
2. Kerrigan delves into Europe’s challenges and slow adoption rate of electric vehicles (EVs). It highlights a realistic view that the immediate top-down switch to EVs, which some may have expected, is unlikely to happen quickly. Regulatory signals suggest a long transition period, acknowledging that EVs lost market share in certain quarters, indicating a more gradual shift.
3. The automotive buy-sell market has seen robust activity, with a record number of transactions in recent years. Despite increased financing costs due to rising interest rates, the industry has remained active, driven by strong dealership profits pre-COVID, healthy balance sheets, and continued private-to-private transactions.
4. Valuation methods have returned to traditional metrics, focusing on trailing 12-month earnings for dealership valuation. While pre-COVID earnings are less relevant now, there’s a discussion about emotional factors influencing acquisitions, especially when buyers have substantial cash reserves and a desire to acquire specific brands or franchises.
5. Moreover, Kerrigan touches on market trends, including the hottest markets for M&A activity, such as the Southeastern U.S. and the emerging importance of the Midwest. It also discusses how specific automotive brands are faring in the market, with some showing strong growth (e.g., BMW, Honda, Mazda). In contrast, others face challenges (e.g., Mercedes-Benz with slower growth, dealer relations issues, and perceived challenges in transitioning to EVs).
"Europe's auto sales surged in the first quarter, outpacing the growth seen in the U.S. market, signaling a potential shift in global automotive demand patterns." – Ryan Kerrigan
Kerrigan Advisors is the premier sell-side advisor and thought partner to auto dealers nationwide. The firm advises the industry's leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Kerrigan Advisors has represented some of auto retail's largest transactions and advised more of the largest dealership groups in the US than any other buy/sell firm in the industry. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, the firm does not take listings, rather they develop a customized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors' sell-side advisory and capital raising services, the firm also provides a suite of consulting services including growth strategy, market valuation assessments, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate due diligence.
Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report®, which includes Kerrigan Advisors' signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments.—To download a preview of the report, click here.—The firm also releases monthly The Kerrigan Index™ composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail 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.—To read the—2023 Kerrigan OEM Survey, click here.—Kerrigan Advisors also is the co-author of NADA's Guide to Buying and Selling a Dealership.
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