The right of first refusal in dealership buy-sells has helped minority dealers acquire stores and is a tool many automakers say can help them manage their franchises. But there is a downside.
Dealership buy-sell experts say the use of the right by automakers is on the rise, with some having aggressively increased involvement in managing their dealership networks since 2015.
Automakers use the right of first refusal as a way to exert more control over who owns their branded dealerships, while some use buyouts to reduce overall dealership footprints, according to Kerrigan Advisors’ 2022 Blue Sky Report published in April.
And automakers who overly rely on the refusal tool can harm dealership blue sky values — the intangible value of a dealership, including goodwill — as some buyers will skip making an offer, according to the report published by Kerrigan Advisors, a sell-side firm in Incline Village, Nev.
“When the buyer pool for a franchise is reduced for this reason, the laws of economics come into play — less demand often results in lower prices,” the report said.
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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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