IRVINE, Calif. - New-vehicle sales might be softening so far this year, but franchised dealerships themselves are turning at a significant pace.
Kerrigan Advisors reported that this year’s dealership buy/sell market rocketed to a strong start in Q1 with 54 completed transactions, representing a 38.5% increase year-over-year. Analysts said in the First Quarter 2019 Blue Sky Report that the first-quarter pace indicates that 2019 is on track to be the sixth consecutive year of 200 transactions or more.
In spite of a 3.2% new-vehicle sales decline, Kerrigan Advisors founder and managing director Erin Kerrigan noted that continued profit stability and an increase in sellers coming to market is contributing to the robust outlook for the buy/sell market.
“As Kerrigan Advisors predicted, 2019 is shaping up to be another solid year for buy/sells and valuations,” Kerrigan said in a news release. “In the face of a decline in new-vehicle sales, the diversity of the dealership business model continues to demonstrate its value through its ability to sustain profits."
“In addition, the influx of older generation sellers coming to market, coupled with private capital jumping into the void left by the publics, all add up to a promising buy/sell year,” she continued.
Kerrigan Advisors explained the first three months of the year reflect a shift in industry focus toward used vehicles, F&I and service and parts. Kerrigan noted that this shift to higher margin profit centers (used-vehicle gross margin is three times that of new vehicles and F&I per new vehicle sold has risen 60% since 2010) is a key reason strategic buyers and outside investors remain interested in auto retail acquisitions, with particular interest in high performing dealerships representing strong franchises in growth markets.
And, with aging dealers increasingly concerned over their ability to succeed in a consolidating, evolving auto retail industry, the firm pointed out that buyers are facing new opportunities, although increasing industry debt poses a looming risk.
According to the report, the healthy economy and strong financial markets means there continues to be a high rate of complex multi-dealership transactions.
Among the franchises being acquired, domestics continued to grow their buy/sell market share, while import non-luxury franchises saw their market share decline, primarily driven by Hyundai, Kia, Mazda, Nissan and Volkswagen.
Interest in top domestic franchises, such as Chevrolet and Ford, as well and top non-luxury imports, such as Toyota, Honda and Subaru remain high, according to Ryan Kerrigan, managing director of Kerrigan Advisors.
“In the face of all these positives in the market, t must be noted that the
outlook is less promising for some players, especially weaker, lower performing
franchises with low buyer demand who are finding it more difficult to find a
buyer, particularly at a strong price,” Ryan Kerrigan said.
“Another factor to watch is that dealership rents appear to have peaked, with Q1 2019 showing a decline for the first time in 10 years,” he continued. “We expect that many dealers are realizing that their businesses can no longer support these high rent levels and, as rents fall, real estate values often follow.”
The report also highlighted that image upgrades required by OEMs are sending sellers to market, but, because these sellers are unwilling to invest the capital required to become facility-compliant, their dealerships will sell at a lower blue sky value in 2019.
In addition, the report identified the following three trends, which are expected to meaningfully impact the buy/sell market through the remainder of 2019. They include:
Other highlights from the Q1 reported included:
The Blue Sky Report, published by Kerrigan Advisors, includes analysis of all transaction activity for the year, and lays out the high, average and low blue-sky multiples for each franchise in luxury and non-luxury segments.
For more details and to preview the report, go to this website.
Kerrigan Advisors is honored to work with auto retailers throughout the US to enhance the value of their enterprise. Learn more about our services below:
Customized and confidential sell-side services for higher value dealerships and dealership groups nationwide, with a proven record of achieving the highest sale price per transaction of any firm in the industry.
Capital raising and partnership structuring for growing dealership groups, supported by the largest investor database in the industry.
If you are a buyer in today’s market, Kerrigan Advisors welcomes the opportunity to learn about your acquisition criteria and include you in Kerrigan Advisors’ proprietary Buyer Database.
We welcome the chance to learn more about your acquisition criteria so that we can contact you in the event a client matches your investment profile.
Contact us to learn more about Kerrigan Advisors’ client services, or to have a conversation about the buy/sell market. All of our conversations are 100% confidential.