Was Q1 buy-sell activity indicative of what we’ll see for the remainder of 2024? On today’s episode of Inside Automotive, Erin Kerrigan, the Founder and Managing Director of Kerrigan Advisors, will walk us through what we saw and what she expects to come.
1. Despite initial expectations, Q1 2024 exceeded the buy-sell activity of Q1 2023 by a small margin, indicating sustained market momentum. Kerrigan highlighted that they are tracking about 400 transactions for the year, aligning with peak levels seen in prior years. This activity level suggests a strong interest and confidence in dealership investments, driven by a robust economic backdrop and solid earnings in the automotive sector.
2. The market dynamics are evolving from a seller-dominated market during the pandemic to a more balanced or buyer-favored market. Kerrigan noted that more sellers are entering the market, increasing acquisition opportunities for buyers. This shift is creating a divergence where high-growth markets and top-performing franchises continue to command strong valuations while less attractive franchises face challenges in achieving desired sale prices. This trend underscores the importance of market positioning and franchise strength in current buy-sell activities.
3. The automotive industry is experiencing a significant influx of capital, partly due to unprecedented earnings over the past four years, which were multiple times higher than pre-pandemic levels. Kerrigan mentioned that public companies alone spent over $1 billion on US dealership acquisitions in Q1 2024, which accounted for over 40% of their capital allocation. This indicates a strong commitment to expanding and investing in dealerships, driven by the attractiveness of these investments despite economic uncertainties and high interest rates.
4. Unlike many industries where high interest rates tend to slow down M&A activity, the automotive buy-sell market has remained resilient. Kerrigan explained that this resilience is due to the industry’s low leverage on acquisitions, with OEMs limiting the amount of debt that can be placed on a dealership purchase. This contrasts sharply with other sectors where private equity firms often use significant leverage. While high interest rates have impacted new vehicle sales and gross margins, dealerships have managed to offset these challenges through other revenue streams, maintaining overall market vitality.
5. OEMs are becoming more assertive in their influence over dealership transactions. Inspired by Tesla’s success with direct-to-consumer sales, some OEMs are reconsidering their franchise networks. Kerrigan observed that OEMs are using their right of first refusal more aggressively and, in some cases, rejecting buyers to push for larger, consolidated dealerships. This trend has made the role of state dealer associations more critical in protecting dealer interests. These associations work to ensure fair treatment of dealers, who invest heavily and take significant risks in their businesses. The increasing OEM involvement adds complexity to buy-sell transactions, making the process more challenging for dealers aiming to maximize their exit values.
"Despite high interest rates, the automotive buy-sell market remains robust, driven by low leverage and high capital availability." – Erin Kerrigan.
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.
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