Unprecedented 383 transactions completed in 2021, representing 830 franchises, nearly three times the pre-pandemic average, according to The Blue Sky Report® by Kerrigan Advisors, which predicts blue sky values will continue to hit new records in 2022 as earnings skyrocket in the first quarter, super-charging industry consolidation
INCLINE VILLAGE, Nev.–(BUSINESS WIRE)–The auto dealership buy/sell market set new records again in 2021 as the continuing, and transformative, impact of the pandemic drove change across the auto dealership business model, according to the just-released Blue Sky Report by Kerrigan Advisors. Unprecedented dealership earnings and blue sky valuations in 2021, says the report, helped fuel a historic 383 completed transactions in 2021, a 32.5% increase from 2020’s prior record and a 71.7% increase over the 2015-2019 pre-pandemic average1. Of note in this pivotal year for the auto industry, the public auto retailers were especially acquisitive, adding 246 dealerships, compared to just 29 in 2020, a shift that, according to the report, indicates a quickening of industry consolidation in the coming years.
Dealership buy/sell activity accelerated throughout 2021, with 158 transactions completed in Q4 alone, more than three times the pre-pandemic fourth quarter average. The transactions completed in 2021 represented 830 franchises, more than in any prior period, with 33% of the transactions representing multiple franchises.
“Auto retail experienced a ‘black swan’ moment in 2020, the results of which continued to transform the industry throughout 2021,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “The pandemic was a catalyst as shrinking new vehicle inventories and rising consumer demand resulted in one of the most extreme supply/demand imbalances in auto retail history. Dealers leveraged their new pricing power while also reducing expenses and enhancing employee productivity, resulting in record dealership profits and dramatically increased operational efficiency. All of which led to the high velocity of dealership transaction activity in 2021.”
According to The Blue Sky Report® by Kerrigan Advisors, auto retail’s systemic transition from a local to a national marketplace, super-charged by the digitization brought on by COVID-19, accelerated consolidation by dealerships looking to expand and scale their businesses. In addition, the move to electrification and Tesla’s proven success with its virtual sales model fast-forwarded auto retail’s shift to a digital sales model – one less reliant on human capital and less dominated by technology.
“The once ‘impossible’ online vehicle sale became the ‘possible’ as a result of the pandemic,” continued Kerrigan. “This accelerated auto retail’s systemic transition from a local to a national marketplace, the consequences of which will be long-lasting, particularly for private, family-run dealerships. Kerrigan Advisors expects digital retailing, along with OEMs attempts to go direct-to-consumer, will stimulate further industry consolidation into 2022.”
According to the report, although private buyers dominated the buy/sell market, with a 71% share, the most notable move in the 2021 buyer pool was the acquisition activity by the public consolidators who grew their buy/sell market share to 29%, spending a record $9.56 billion in 2021, over 7 times their pre-pandemic average between 2014 and 2019.
The success of the publics’ acquisition strategy is further reinforced by The Kerrigan Index™ of the largest publicly traded auto retailers which traded above 1,000 for 201 of 252 trading days last year, with each public hitting an all-time record high stock price during the year. The report notes that with the publics’ stock prices at these elevated levels, more acquisitions are accretive to earnings and thus they increased their capital allocation to acquisitions.
“The activity by the publics in 2021 represented a dramatic about-face and a new record for these companies,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “The pandemic made clear that scale and a national platform will be clear differentiators for auto retailers in the future, particularly with their digital platforms. As a result, these companies shifted their focus from incremental ‘tuck-in’ investments to major group expansion that meaningfully enhanced their geographic reach and added billions in revenue to their topline.”
Another significant buy/sell market change was the reduction in the domestic’s buy/sell market share to 46%, relative to their franchise market share of 66%. By contrast, import franchises saw their buy/sell market share soar to 54%, with Toyota hitting a new high of 7.7% – the highest level ever recorded by an import franchise. Kerrigan Advisors attributes Toyota’s rise to buyer confidence in the OEM’s partnership business model with its dealers, relative to the strained dealer relations with domestic OEMs, such as Ford and GM.
“We are seeing more buyer skepticism about Ford’s and GM’s plans to go direct-to-consumer which may lead to a decline in buyer demand for these franchises in the future. By contrast, the demand for Toyota franchises is as high as we have ever seen it,” continued Ryan Kerrigan. “Buyers believe an investment in a Toyota franchise will last the test of time because Toyota partners with its dealer network. Whatever the future holds, buyers feel very confident it will be a ‘win/win’ for Toyota and its dealers.”
2022 Buy/Sell Trends
Kerrigan Advisors has identified the following three important trends which it expects to meaningfully impact the market in 2022.
Blue Sky Multiple & Outlook Adjustments
Given the tremendous transformation in auto retail in 2021, and expectations for future changes with electrification and digital retailing, Kerrigan Advisors made several adjustments to its blue sky multiples and multiple outlooks.
“Uncertainty generally creates greater volatility in a business’ valuation and the more uncertain buyers are regarding a franchise’s future earnings, the lower the blue sky multiple they are willing to pay. With this in mind, Kerrigan Advisors downgraded our outlooks on the Chevrolet, Ford, and Buick GMC franchises to negative from steady,” said Erin Kerrigan. “These domestics are flirting with new business models for their vast dealer networks and the unknowns associated with these changes is adding a level of risk to their proforma earnings, which may reduce their multiples in the future.”
In addition to the changes in the outlook for Ford and General Motors, Kerrigan Advisors made the following changes to the fourth quarter 2021 blue sky multiples.
Highlights from the Q4 2021 Blue Sky Report® by Kerrigan Advisors include:
The Blue Sky Report®, published by Kerrigan Advisors, is the auto retail industry’s most comprehensive and authoritative quarterly report on dealership M&A activity, as well as franchise values. The quarterly report, received by nearly 10,000 industry recipients in 35 countries, includes analysis of all dealership transaction activity for the year, and lays out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments. For more details and to preview the report, click here. To sign up to receive the quarterly report, click here.
Kerrigan Advisors 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.
Kerrigan Advisors is the leading sell-side advisor and thought partner to auto dealers nationwide. Since its founding in 2014, the firm has led the industry with the sale of over 280 dealerships representing $9 billion in client proceeds, including the third largest transaction in auto retail history – the sale of Jim Koons Automotive Companies to Asbury Automotive Group. 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. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, Kerrigan Advisors does not take listings, rather they develop a customized sales approach for each client to achieve their personal and financial goals. In addition to the firm’s sell-side advisory services, Kerrigan Advisors also provides a suite of consulting and investor 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 Dealer Survey, click here. To read the 2024 Kerrigan OEM Survey, click here. Kerrigan Advisors also is the co-author of NADA’s Guide to Buying and Selling a Dealership.
Contact us to learn more about Kerrigan Advisors’ sell-side services.
All of our conversations are 100% confidential.
