Today on Inside Automotive, we’re pleased to welcome back Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors, who shares her insights and expertise into the current state of the buy/sell market.
To the surprise of many, 2022 got off to a stronger start than 2021. Q1 2022 earnings surpassed prior Q1 2021 earnings as well. There are stockpiles of cash in dealer pockets and most want to use that capital to expand, explains Kerrigan. There is still tremendous opportunity in the auto industry, despite troubling economic factors.
Auto retail is a counter-cyclical business. If a recession does come, the industry will likely still do well.
“[Automotive retail] is almost a perfectly hedged business model with a high variable cost structure that really makes it sustainable through thick and thin,” says Kerrigan.
Interestingly, even in the inflationary environment, auto dealers are not immediately affected because most of the expense structure is variable and customers have more equity in their trade-ins. Kerrigan Advisors expects that Wall Street, in particular, will take note of the industry, which is outperforming other retailers. comparatively outperform other retailers.
In regards to OEM brands, demand for Toyota and Lexus franchises is off the charts. The partnership model these two brands have with the dealer network is attractive to potential buyers and is reflected in the valuations.
Population growth is driving enormous M&A activity in states like Colorado, Florida, and Texas. In 2021 17% of dealerships in Colorado were sold. At that rate, it would only take six years for every dealership in the entire state to be sold, says Kerrigan.
Dealers in every market are looking to expand their scale. Even though there is demand outside of markets for states like Florida or Texas, Kerrigan Advisors is seeing demand for almost every franchise in every market because local dealerships are buying out each other, she adds.
“In general, we’re finding that most transactions are being priced on an expectation of normalized earnings once supply meets demand,” explains Kerrigan.
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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.
Contact us to learn more about Kerrigan Advisors’ sell-side services.
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