On today’s show, we’re pleased to welcome back the Founder and Managing Director of Kerrigan Advisors, Erin Kerrigan, to walk us through the latest results from the recently released Q3 2021 Blue Sky Report®. Jim and Erin take a close look at the current buy-sell market, how it compares to previous years, and key findings from The Kerrigan Dealer Survey.
After surveying 800 car dealers, Kerrigan found that 61% of them expect an increase in the value of their dealership or dealership group in the next 12 months which is more than double than 2020. Kerrigan thinks that this is largely due to the significant rise in earnings. In fact, 79% of the dealers who participated in the survey also expect their earnings to rise in 2022, especially coming off of five consecutive quarters of record earnings.
“Most people in the industry agree we’re probably not going to stay at these very elevated earnings levels forever,” says Kerrigan. “However, few believe now that we’re going to return to the pre-pandemic lows that we were in before, of course, we experienced this unforeseen global issue.”
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This theory can also be seen at work in the data. Average earnings pre-pandemic were around 2.5% as an industry net to sale. Average earnings today are now north of 5%. This is also the first time average revenue per employee top $1 million. This all indicates that car dealerships are running in a much more efficient manner. Dealers are not inclined to return to pre-pandemic levels of productivity. That will sustain some of the improved earnings, which also have tremendous gross profit margins. However, few believe those margins will eventually come down, but not to pre-pandemic levels either.
According to the Q3 2021 Blue Sky Report®, the buy-sell market was up 20% in terms of transactions closing. When the full tally for 2021 comes in, Kerrigan expects to see about 350 transactions completed, representing over 600 franchises. This is quite a significant increase over a very active 2020, and it doesn’t appear to be slowing down any time soon. Kerrigan also expects a bump in transactions for Q4 of 2021 as many dealers were looking to close out before the end of the year, and avoid any potential change in tax code.
Valuations have also become trickier to measure. Now, they are often calculated to be an average of the past three years. However, once the record earnings are factored in and with added reassurance from the OEMs regarding supply, valuations are trending higher.
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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