What does the incredible year of buy/sell activity we’ve seen mean for the OEMs? On today’s show, we’re joined by Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors to walk us through what’s happening in the buy-sell market today.
They expected 2021 to be the year of the megadeal and Kerrigan thinks 2022 will continue that trend. The Larry H. Miller transaction with Asbury valued at $3.2 billion is a new record. She says what’s interesting about that deal is how strong the evaluation it is. It’s the sense of confidence that the industry will be able to continue at this level of profitability. Kerrigan finds that dealership groups with strong brands are valued at a higher level than those that don’t have either a regional presence with a brand or a dominant brand.
Related: Dealership M&A activity reaching feverish pace in third quarter
Kerrigan says the number one reason you are seeing so many megadeals is because the stock market is at an all-time high. The Kerrigan Index surpassed the 1,000 mark in March and kept going. Also, interest rates and the debt markets are minimal.
Over 50% of the industry is in some form of transition. The auto industry has defied the odds as it relates to family businesses being passed down. Kerrigan says businesses are trying to figure out if they want to transition into electrification and digital retailing. She says they’re seeing those family discussions come to a head where families are finally deciding, it may be the time to sell. Currently, dealerships have on average, a return on equity, 50% plus. The more they can grow revenue, the more valuable dealerships will be.
The inventory shortage doesn’t have any effect on current valuations. Kerrigan says if anything, it’s improving valuations because dealerships are making so much money. She says the biggest challenge buyers have today is upon what earnings do I value a dealership? Most deals that are getting done, are the ones buyers averaging the current earnings and pre-pandemic earnings.
Kerrigan predicts they are going to be well over 350 transactions and even as high as 1,000 franchises trade hands in 2021. The buy/sell approval process is becoming a much bigger issue because it could possibly be a tax code change in 2022. She says they’re also seeing OEMs exercising their right of refusal in states, where they have that right to do so. Kerrigan says they do that because they want to pick who their dealers are. She says they’re keeping a very close watch on that.
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 275 dealerships representing nearly $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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