Two firms — Haig Partners and Kerrigan Advisors — each shared upbeat reports about the “robust” outlook for dealership buy-sell activity.

In fact, The Blue Sky Report from Kerrigan Advisors went so far as to say dealership buy/sell activity is set to rebound to record levels in 2017 as the firm released its analysis for the full year of 2016.

Although there was what Kerrigan classified as a slight decline — 8 percent — in overall transaction activity a year ago, and rising real estate costs are set to present a challenge for buyers, the report indicated what’s driving robust optimism are five factors, including

—An increase in “serious” sellers coming back into market

—Improved valuations

—Private buyer demand for large acquisitions

—Advantageous market fluctuations

—The “Trump Bump”

“Most dealers understand that the opportunity has passed to obtain above-market blue sky prices and, instead, are satisfied knowing that today’s valuation levels are still very high, particularly on a historic basis,” said Erin Kerrigan, managing director of Kerrigan Advisors. 

“Buyers are finding pricing more reasonable in part because today’s sellers are serious about a sale. The market testers who were seeking ‘crazy’ blue sky values have primarily returned to operating their businesses, discovering those unrealistic values were not attainable,” Kerrigan continued.

Laying out the high, average and low multiples for each franchise in the luxury and non-luxury segments for the quarter, the report is geared to offer a detailed view of public and private company dealership acquisition activity. Other key findings from the report include:

• 221 dealership buy/sell transactions were completed last year, compared to the record of 241 transactions in 2015.
• 57 multi-dealership transactions were completed last year, resulting in an 8 percent increase over that 2015 record.
• Ford, Chevrolet, Toyota, Honda and Subaru are likely to be chief targets of acquisition activity.
• Domestic franchises saw their buy/sell market share increase by 42 percent in 2016.
• With truck sales still on the rise, domestic buy/sells will continue to dominate the 2017 buy/sell market.
• Public auto retailers’ acquisition spending decreased 21 percent in 2016 compared to 2015, with Lithia and AutoNation the only publics to make acquisitions of U.S. dealerships in 2016.
• Publics sold nearly as many dealerships as they acquired.
• The private sector acquired 89 percent of the franchises sold in 2016.
• The average dealership’s real estate value is estimated at $10.3 million, while the average dealership’s blue sky (goodwill) value is estimated at $6.6 million.

The report also identifies the following four market trends, which Kerrigan Advisors expects to affect the buy/sell market in 2017 and beyond. They included:

• Buyers’ return on investment parameters drive buy/sell activity
• Sellers’ pricing expectations rationalize with a plateauing market
• Buyers seek investments in higher margin auto retail business segment
• Dealers are increasingly open to equity and growth capital partners

“Overall, we expect 2017 to be a very active year for buy/sells with private and more public buyers eager to put their capital to work. We find an increasing number of sellers coming to market motivated by current prices and a strong desire to capitalize on today’s buy/sell activity,” Kerrigan said.

“As more dealers find their succession plans have run their course, we expect the number of sellers to rise, given the generational shifts underway in auto retail and the aging of the U.S. dealer network,” she went on to say.

The Blue Sky Report, a Kerrigan Quarterly, is published four times a year and includes Kerrigan Advisors’ signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. The multiples are based on Kerrigan Advisors’ view of franchise values in the current buy/sell market and can be applied to adjusted pre-tax dealership earnings to estimate blue sky value.

To download the Kerrigan Advisors report, go to this website.