Kerrigan Advisors projects over 350 completed transactions for 2021; historic market velocity driven by high valuations and unprecedented capital access resulting from record revenue and profitability
INCLINE VILLAGE, Nev.--(BUSINESS WIRE)--The auto dealership buy/sell market is on track for another record year as it continued its momentous pace in the third quarter according to the just-released Third Quarter 2021 Blue Sky Report® by Kerrigan Advisors, the industry authority on dealership valuation and buy/sell trends. In the third quarter, there were 81 dealership buy/sell transactions completed for a total of 225 transactions1 for the first three quarters of the year, a 21% increase over 2020’s previous record. Kerrigan Advisors projects that 2021 will finish with over 350 transactions, a new industry high.
The increases in the Q3 buy/sell market were directly related to the industry’s continued historic record profits and revenue: in the last four quarters, the average dealership saw revenue rise to new highs and earnings increase 168% higher than 2019.
“Month after month of record profits is driving the velocity of this historic buy/sell market, increasing valuations and fueling an unprecedented rise in capital availability,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “Today, most dealers’ cash accounts are awash in more profit than they could have dreamed of in a single year. This, combined with low inventory levels and minimal floorplan, is resulting in a tremendous deleveraging of dealers’ balance sheets enabling them to access larger amounts of debt to finance major expansion on attractive terms.”
Kerrigan pointed out that despite 2021’s record profits, the vast majority of dealers expect profits to rise even further over the next 12 months2, as inventory remains constrained and consumer demand remains high. This has made dealers bullish on growth with 77% planning to acquire one or more dealerships over the next 12 months.
“Dealers have re-engineered their business model, accomplishing record profits with fewer employees and less operating expense. As quarter after quarter proves the advantages of today’s more efficient model, dealers are shifting from a 'more is more' mentality to a 'less is more' perspective for both employees and inventories, distancing themselves from auto retails’ antiquated pre-Covid economic architecture of less productive employees and an oversupply of inventory,” said Kerrigan.
Consistent with the industry’s positive profit outlook for 2022, the Kerrigan Index of the seven publicly traded auto retailers hit new records through the end of the third quarter, up 39.8% year-to-date, as it continued to outperform the S&P 500 Index by over 76%.
The publics were major players in the explosive buy/sell market with their spending on acquisitions coming in at a record $2.7 billion in the first three quarters of 2021, surpassing 2020’s full year record, and putting 2021 on track to be the most acquisitive year for the publics on record. Kerrigan Advisors projects their acquisition spending for 2021 will reach over $7 billion.
“This is a remarkable number which will surely cement 2021 as the most acquisitive year on record for the public acquirers,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “Wall Street is rewarding these companies with higher valuations believing that an investment in the consolidation of auto retail is one that will pay future dividends. Since Wall Street is paying a price premium for the most acquisitive companies, it is not surprising to see all of them make US dealerships acquisitions in 2021.”
Kerrigan added that private buyers continue to dominate industry consolidation, albeit less than they did in 2020 given the publics’ renewed commitment to acquisitions, acquiring 86% of franchises sold in the first three quarters of 2021.
Multi-dealership transactions were also important factors in the first three quarters of 2021: an unprecedented 79 multi-dealership transactions were completed, representing 35% of the total buy/sell market. Among the franchises being acquired, import non-luxury franchises continue to see increased market share relative to 2020, with 38% of the buy/sell market.
Multiple Outlook Adjustments – Toyota, Hyundai, Kia and Nissan Increase
For the third quarter of 2021, Kerrigan Advisors made positive adjustments to four blue sky multiples.
Toyota’s high-end blue sky multiple was increased from 7.0 to 7.25 with its outlook remaining positive. “Our dealer survey highlighted the rising value of the Toyota franchise with the majority surveyed expecting the franchises to increase in value,” said Ryan Kerrigan. “This is consistent with our recent experience selling multiple Toyota dealerships. As auto retail enters a period of evolution, dealers are confident in Toyota’s future franchise value due to its supportive partnership with its dealer network.”
Kerrigan Advisors also increased Hyundai’s and Kia’s blue sky multiples on the high-end to 4.5 from 4.0 and on the low-end to 3.5 from 3.0 and moved their outlooks from steady to positive. Hyundai and Kia become the second and third highest ranked franchises by dealers in expectations for increased valuation, leapfrogging over last year’s survey leaders Subaru, Porsche, Honda, Mercedes-Benz and Lexus.
Nissan’s high-end blue sky multiple was increased to 3.5 from 3.0 and its low-end multiple to 2.5 from 2.25, as Nissan saw a significant improvement in the survey with 22% of dealers expecting Nissan to increase in value, compared to just 8% in 2020. Kerrigan Advisors kept Nissan’s multiple outlook positive as further increases may occur over the next 12 months with continued improvements in dealership profits.
2021 Buy/Sell Trends
Kerrigan Advisors identified the following important trends it expects to impact the buy/sell market into 2022.
Highlights from the Q3 2021 Blue Sky Report® by Kerrigan Advisors include:
The Blue Sky Report®, published by Kerrigan Advisors, is the auto retail industry's most comprehensive and authoritative quarterly report on dealership M&A activity, as well as franchise values. The quarterly report, received by nearly 10,000 industry recipients in 35 countries, includes analysis of all dealership transaction activity for the year, and lays out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments. For more details and to preview the report, click here. To sign up to receive the quarterly report, click here.
Kerrigan Advisors 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.
About Kerrigan Advisors
Kerrigan Advisors is the premier sell-side advisor and thought partner to auto dealers in the US. The firm advises auto dealers nationwide, enhancing value through the lifecycle of growing, operating and monetizing their businesses, as well as offering restructuring and turnaround consulting services. Kerrigan Advisors has had the honor of representing the industry’s largest transactions, including more Top 150 Dealership Groups than any other firm in the industry. Led by a team of veteran industry experts, the firm does not take listings; rather Kerrigan Advisors develops a customized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors’ sell-side advisory and capital-raising services, the firm also provides a suite of consulting services including growth strategies, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate analysis.
Kerrigan Advisors publishes The Blue Sky Report®, which is the auto industry's most comprehensive and authoritative quarterly report of dealership buy/sell activity and franchise values, received by nearly 10,000 industry participants in 35 countries. To register to receive The Blue Sky Report®, click here. Kerrigan Advisors also publishes The Kerrigan Index™, the only monthly report tracking the seven publicly traded auto retail companies. To access The Kerrigan Index™, click here.
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.