New tax law and economies of scale help publics and consolidators buck trends to grow earnings and fuel Q2 Buy/Sell market to 92% growth over Q1; one-eighth of all auto dealerships have changed hands since 2014 as industry consolidation continues
The new tax law and improved economies of scale and scope are among the trends driving a robust Buy/Sell market in Q2, after a slow start to the year, according to The Blue Sky Report’s® Second Quarter Report released by Kerrigan Advisors.
Seventy-five transactions were completed in Q2, a 92% increase over Q1. With consolidators and publicly traded auto retailers seeing increased earnings as a result of these factors, profitability at dealerships holding steady, and dealerships embracing innovative, profit-driving business models, Kerrigan Advisors predicts that 2018 will mark the fifth consecutive year to see over 200 transactions.
“We estimate one in eight dealerships have changed hands since 2014 and we believe increasing consolidation means this number will only increase,” said Erin Kerrigan, managing director of Kerrigan Advisors. “Consolidators are leveraging significant opportunities to increase earnings with accretive acquisitions by achieving economies of scale and scope post-transaction.”
“Consolidators are finding new ways to grow earnings by employing technology and streamlining their business models, changing their selling systems, and introducing new products across their platforms, while the ‘to-be-consolidated’ are squeezing more profit out of their existing business models. And both are being positively impacted by reduced taxes as a result of tax reform,” added Ryan Kerrigan, managing director of Kerrigan Advisors.
The Kerrigans, however, did note that while blue sky values remained high in Q2, they were below 2017 levels, partly as a result of rising interest rates and floor plan cost increases. But, despite a plateauing SAAR, The Kerrigan Index™, which tracks publicly traded auto retail companies, continues to rise – indicating that Wall Street believes that scale matters and that anticipated disruptions to auto retail will disproportionately benefit the largest dealership groups. “There is little doubt that size will be a key driver for future success in auto retail,” added Ryan Kerrigan.
The Blue Sky Report, published by Kerrigan Advisors, is the auto industry's most comprehensive and authoritative quarterly report on dealership M&A activity, as well as franchise values. It includes analysis of all transaction activity for the quarter, and lays out the high, average and low blue sky multiples for each franchise in luxury and non-luxury segments.
Key Highlights from the Blue Sky Report Q2 Report include:
The Q2 Report outlines three key trends that Kerrigan Advisors anticipates will have a significant impact on the buy/sell market for the remainder of 2018 and into 2019:
In addition to expense reduction and a focus on geographic concentration, the report emphasizes the importance of successful and innovative business models to increased valuations, citing the recent sale of Wilsonville Toyota and Wilsonville Subaru, both of which effectively utilized a no-negotiation sales model, resulting in profitability far higher than industry standards.
“Buyers of dealerships today are students of auto retail. Most spend their days and nights thinking of ways to enhance their business’ profitability and strategically drive earnings growth,” said Erin Kerrigan. “Acquisition opportunities that provide an expanding group with new strategies to grow earnings will command a premium in today’s buy/sell market.”
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 the report, click here. The company also releases monthly The Kerrigan Index™, composed of the seven publicly traded auto retail companies with operations focused on the U.S. 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.
Erin Kerrigan is Founder and Managing Director of Kerrigan Advisors, and is a recognized industry expert on dealership valuation, real estate, and buy/sells. A sought-after commentator on automotive retailing topics ranging from consumer auto buying trends to auto retail consolidation to private equity in auto retail, she has keynoted numerous automotive conferences and her analysis has appeared in publications such as Automotive News, CNBC.com, and the Wall Street Journal. For a recent video of Erin’s commentary on the market, click here.
Ryan Kerrigan is Managing Director of Kerrigan Advisors and an expert on U.S. auto retail buy-sell transaction work. Prior, Ryan served as Managing Director at Serent Capital, a $250mm private equity fund investing in middle market companies, and served as General Manager of the family’s auto dealership. Mr. Kerrigan began his career as a management consultant at McKinsey & Company, where he advised Fortune 500 companies on growth strategies, organizational issues, pricing, and business valuation.
About Kerrigan Advisors
Kerrigan Advisors is the leading dealership buy/sell advisory firm focused on providing a high level of client service for dealership sellers nationwide. Led by a team of veteran advisors, Kerrigan Advisors customizes each sale process to maximize the seller’s transaction proceeds. The firm has sold 72 dealerships since 2015, including five of the Top 100 Dealership Groups in the U.S. With the most comprehensive buyer database in the industry, Kerrigan Advisors has the industry context and expertise to match every seller with the right buyer. In addition to Kerrigan Advisors’ sell-side transaction work, the firm also provides a suite of consulting services including accounting preparation for sale, litigation support, open point applications and transactional due diligence.
In addition to the monthly Kerrigan Auto Retail Index, each quarter, Kerrigan Advisors publishes The Blue Sky Report®, a Kerrigan Quarterly, which is the auto industry’s most comprehensive and authoritative quarterly report and analysis of dealership buy/sell activity and franchise values. Kerrigan Advisors’ Managing Director, Erin Kerrigan, is a recognized industry expert on dealership valuation, real estate, and buy/sells, and is a frequent speaker at leading auto retail events and conferences, including NADA, JD Power Automotive Roundtable, AICPA, NADC, and Driving Sales’ President’s Club. She has also been a keynote speaker for events hosted by American Honda Motor Company, Audi of America, US Trust, Ohio Automobile Dealer Association, and SunTrust Bank, and has led webinars for NADA and Automotive News. Kerrigan Advisors’ Managing Director Ryan Kerrigan is also a sought-after industry expert. He is featured in a monthly column for Dealer Magazine and has written Op-Eds for Automotive News, among other outlets.
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.