The auto dealership buy/sell market continued its high level of activity, fueled by a healthy economy and an increased pool of sellers reacting to auto retail’s future, according to The Blue Sky Report’s® First Quarter Report released by Kerrigan Advisors.
Fresh investment and capital from new players, including international buyers, kept the pace at a high level – though down from last year’s peak, says The Blue Sky Report. The continued steady pace of a 17 million SAAR, compounded by pressure on dealership profits and emerging changes to the dealership business model, have essentially defined the market into two camps: buyers who have outside capital or resources to embrace and drive change, and sellers who are increasingly reliant on OEM incentives for profitability, and are concerned about how coming changes will impact generational succession plans.
Among the most noteworthy transactions underscoring this trend is AutoCanada’s acquisition of Kerrigan Advisors’ client Grossinger Automotive Group (#95 on Automotive News’ Top 150 Dealership Group List). The Grossinger transaction was the largest transaction ever made in auto retail by a non-U.S. company.
“As with 2017, we’re continuing to see the economic benefits of consolidation, and how that’s attracting new buyers to auto retail,” said Erin Kerrigan, managing director of Kerrigan Advisors. “There is also a rising interest by many dealers in selling. In particular, smaller dealership groups, who are struggling to maximize profit through economies of scale, are concerned about the viability of their family business for future generations. These dealers would rather sell now when values are high then risk the unknown.”
This cautious approach to unknown factors has also changed the way buyers are approaching the market. While the past saw them base valuations on future potential earnings, today’s focus is on current performance. “In the last decade, buyers mostly priced acquisitions based on expected pro forma earnings post-transaction,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors. “With industry sales slowing, however, many are now unwilling to base their purchase price on what a dealership could do. They are focused on what the dealership is currently doing in terms of profit. That is what drives value today.”
The Blue Sky Report, published by Kerrigan Advisors, is the auto industry’s most comprehensive and authoritative quarterly report on dealership M&A activity, as well as franchise values. It includes analysis of all transaction activity for the quarter, and lays out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments.
Blue Sky Report data and analysis from the June Quarterly Report includes:
The report identifies three key trends shaping 2018 and into 2019:
“Kerrigan Advisors sees movement toward increased consolidation in auto retail, as well as continued increase in capital investment from outside the industry. Buyers are excited by the long-term opportunity and healthy pace of the current market, and see it as a chance to increase investment,” added Erin Kerrigan. “At the same time, we expect this shift toward economies of scale, coupled by current high values, to entice smaller dealership groups to sell as part of their estate planning.”
The Blue Sky Report®, a Kerrigan Quarterly, is published four times a year and includes Kerrigan Advisors’ signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. To preview and download The Blue Sky Report, click here.
Kerrigan Advisors also releases a monthly index, The Kerrigan Index™, composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan 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.
Erin Kerrigan is Founder and Managing Director of Kerrigan Advisors, and is a recognized industry expert on dealership valuation, real estate and buy/sells. A sought-after commentator on automotive retailing topics ranging from consumer auto buying trends to auto retail consolidation to private equity in auto retail, she has keynoted numerous automotive conferences and her analysis has appeared in publications such as Automotive News, CNBC.com, and the Wall Street Journal. For a recent video of Erin’s commentary on the market, click here.
Ryan Kerrigan is Managing Director of Kerrigan Advisors and an expert on US auto retail buy-sell transaction work. Prior, Ryan served as Managing Director at Serent Capital, a $250MM private equity fund investing in middle market companies and served as General Manager of the family’s auto dealership. Mr. Kerrigan began his career as a management consultant at McKinsey & Company, where he advised Fortune 500 companies on growth strategies, organizational issues, pricing and business valuation. For a recent video of Ryan’s commentary on the market, click here.
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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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