Welcome to another edition of Inside Automotive. Today, we get an update on the buy/sell market from Ryan Kerrigan, Managing Director of Kerrigan Advisors. Ryan also tackles record-setting profits across the industry and the continued buzz around electric cars.
All of the publics recently announced Q1 earnings and doubled the aggregate, up 94% over a robust Q1 2021. We’ve never seen these margins and levels of cash flow before, says Kerrigan. Auto retailers now regularly post quarterly profits that far exceed their annual earnings from just a couple of years ago.
On the other hand, the markets have been brutal in recent weeks. Auto retailers have trended down with the market. Year to date, the markets are down about 16%, and auto retailers are down about 15%. These numbers are in line with what’s going on in the marketplace. P/E (price-to-earnings) ratios start to get quite interesting when extraordinary profits are in the mix.
The buy/sell market is experiencing incredible activity levels, and the deals are getting bigger, says Kerrigan. 30 to 40% of all these deals often involve between 3 and 6 franchise stores, sometimes more. The activity level remains incredibly strong, and Kerrigan Advisors does not see it slowing down.
“If we had a crystal ball and we knew that this margin structure was going to end at date certain well, then that would change everything. And people would be making very quick decisions,” explains Kerrigan.
However, Kerrigan adds that he doesn’t know if elevated margin levels will continue. It does give some sellers pause and keeps valuations high because sellers will not hand over their businesses that generate robust cash flows.
The race to electric cars also adds variables of uncertainty. It’s still a minimal market share, but EV sales increased substantially in Q1, roughly 60% year-over-year. While Tesla is still the dominant electric car provider, a fleet of new electric models is coming to the marketplace, including the Ford F-150 Lightning, the GMC Hummer EV, and the Hyundai Ioniq 5, to name a few.
Recently, one of the biggest headlines in this space was Volkswagen resurrecting the international Scout, rebranded as an EV SUV. Reportedly, VW wants to sell 250,000 Scout-branded EVs every year in the United States.
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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 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.
Contact us to learn more about Kerrigan Advisors’ sell-side services.
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