Over the past year, CBT News has reported on the incredible M&A activity in the retail automotive industry. Profitability, transactions, and market valuations for the public companies have been off the charts. On today’s show, we’re pleased to welcome back Ryan Kerrigan, managing director of Kerrigan Advisors, to discuss where the buy/sell market is headed for the rest of 2021.
Kerrigan begins this conversation by reminding us that April saw even more record-breaking automotive transactions, indicating that the market is still red hot. By tracking the stimulus spending coming out of the Federal Government, Kerrigan is confident that at least for the next six months, the M&A market will continue to be driven up by this spending. Additionally, in Q1 of this year, the six publicly traded new-car retailers reported over $800 million in net income after taxes. The industry has never seen numbers like this before and it is a testament to unprecedented economic conditions.
The conversation then shifts to the ongoing semiconductor shortage that is plaguing production quotas for several major manufacturers including Ford, Volkswagen, and GM to name a few. Kerrigan says that so far, the car dealers that he has spoken to are still selling cars at a feverish pace, however, it is likely that the chip shortage will catch up them at some point. Although, it is unclear when that might happen.
Circling back to M&A transactions, we’ve seen top publicly traded retailers like Lithia Motors and Asbury Automotive Group maintain aggressive acquisition plans. Where does this leave the smaller mom-and-pop dealers that maybe own two or three stores? Kerrigan says that the fact of the matter is that car dealers large and small are still seeing big increases in profitability. However, it is clear to Kerrigan Advisors that these groups will continue getting larger. 2020 and 2021 results will be outliers for the industry, and as the market returns to ‘normal,’ smaller dealers might find it more difficult to compete.
Wrapping up the discussion is talk of electric vehicles and direct sales from the OEMs. Auto brands like Cadillac and Volvo are positioning themselves to potentially sell vehicles directly to consumers. While some OEMs are gesturing in that direction, there are several potential caveats and uncertainties that will impact the effectiveness of that business model.
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 $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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