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9 trends from first 6 months of dealership transaction activity

IRVINE, Calif. – The Blue Sky Report from Kerrigan Advisors released on Monday highlighted that the number of large, multi-dealership transactions rose by 52 percent year-over-year during the first half of 2016.

Along with seven other key findings from its analysis of the first six months of the year, Kerrigan Advisors found there was a decline in overall transaction activity. However, the firm also noticed the average size of transactions rose significantly.

Laying out the high, average and low multiples for each franchise in the luxury and non-luxury segments for the quarter, the report mentioned seven other key findings, including:

  • 32 multi-dealership transactions completed.
  • 22-percent increase in average transaction size as average dealership group sold represented more than three franchises.
  • 16 percent decline in overall transaction activity.
  • Dealership group sellers spurred by retirement, estate planning, lack of a succession plan and rising real estate prices.
  • Domestic buy/sell market share increases as buyers attracted to higher return on investment versus imports.
  • Private buyers continue to drive the market as publicly traded dealerships’ market caps decline.
  • Publicly traded dealerships, as a group, sold nearly as many dealerships as they acquired.

 “Many owners of multi-franchise groups, particularly those at or near retirement, are capitalizing on their ability to sell their groups to a single buyer in today’s market,” said Erin Kerrigan, managing director of Kerrigan Advisors.

“Even with the exit of most of the public buyers, private buyers and new entrants remain active and are often attracted to the scale provided by larger group acquisitions,” Kerrigan continued.

“And, while the activity level in the first half of 2016 was lower than the first half of 2015, if annualized it would exceed the number of transactions completed in 2014,” she went on to say.

The report also identified three key trends for the second half of this year, including:

  • Transaction sizes will continue to rise.
  • Public valuation declines in the first half of the year portend potential private valuation declines.
  • The quality of current and future sales may weaken.

“While buy/sell activity declined in the first half of 2016 for the first time since the recession, driven primarily by the exit of most public buyers, we expect the pace of acquisition activity to increase in the second half of 2016, as private buyers and new entrants continue seeking sizable acquisitions and sellers continue to capitalize on attractive valuations,” Kerrigan said.

“But it must be noted that the decline in the public dealership values as noted by The KAR Index may portend a decline in future private values and the quality of industry sales may be weakening, increasing industry risk and resulting in lower dealership earnings,” she added.

The Blue Sky Report 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.

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