Big banks see an opportunity to grow their business with car dealers, as auto inventories are rebounding in the wake of the pandemic, and two competitors are pulling out of the market.
Capital One Financial and Fifth Third Bancorp both said recently that they’re leaving the floorplan lending business, which provides financing to auto dealers.
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The two banks’ exit from floorplan lending means larger lenders will continue adding to their share of dealer business, said Erin Kerrigan, the founder of the auto advisory firm Kerrigan Advisors.
In some ways, that trend mirrors what’s happening in the auto dealer market: consolidation.
Some dealers, including publicly traded ones, are looking to get bigger by buying competitors or expanding into new regions. Others are eager to sell, partly because the value of their business is high following the pandemic boom in the auto sector.
“The largest dealers are getting larger, and similarly, the banking industry serving auto retailers is consolidating,” said Kerrigan, whose firm provides transaction advice to dealers.
Sales of auto dealers jumped to 103 in the first quarter of the year, up sharply from 72 a year earlier and 66 in the first quarter of 2021, according to a report by Kerrigan Advisors.
The uptick in M&A has boosted acquisition lending among the banks that have stuck with the sector.
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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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