We recently discussed today’s buy-sell market with the Kerrigan Advisors, who represents some of auto retail’s largest transactions, including Earnhardt Auto Centers’ sale of two Arizona dealerships. So on today’s show, we’re pleased to welcome back Ryan Kerrigan, Managing Director of Kerrigan Advisors, for an update on the market and we’ll also get into some of today’s headlines as well.
The dynamics between sellers and buyers have been explosive profitability and activity in the first half of 2021. Through the first half of 2021, Kerrigan says you’re looking at 321 buy-sell deals in the industry. He says he has never seen anything like that before. He thinks that’s going to be accelerated into Q4, with some big announcements through the end of the year.
Related: Dealership M&A transactions continue. Why is buy-sell activity so high?
Folks have money and they’re looking to spend, says Kerrigan. The emphasis on personal mobility has never been higher. There are also 29 days of supply on the ground. With those combinations, that’s what’s driving the high level of earnings. He says people aren’t necessarily growing their businesses but they are growing the margins. Across the industry, debt to equity ratios is down about 30%. Dealers have billions of dollars of untapped credit with their bankers. Kerrigan says they are seeing groups, both small and large willing to look seriously with buy-sell. The capacity to do transactions is there.
Valuations are very tricky says Kerrigan. He thinks in 2022, we’re going to have big statements earnings. He says he’s confident that sellers are going to be less flexible, with an upward tick in valuation in 2022.
As for major trends, Kerrigan says he’s seeing the non-luxury import brands starting to trade more frequently. They have been running about 30% of transactions, ticking up to over 40%. Kerrigan says they estimate, your average blue sky has gone up in value by about 42%. You’re seeing fewer domestic deals getting done, on a percentage basis, not an absolute basis. He also says the OEMs are getting backed up and are going to be backed up. I think it’s going to be a very stressful Q4, says Kerrigan. We are anticipating quite a trainwreck in the next couple of months in terms of processing deals. He says they are already starting to see OEMs slow down a bit in their responsiveness.
Kerrigan says their heads are down and they are focused. They have a lot in the works, and he believes the industry will have a lot to talk about in Q4. It’s going to be an extraordinary close to a record-setting year.
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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