High dealership earnings drive buy/sell market to boomerang back in Q2, with first half of 2020 surpassing 2019, according to The Blue Sky Report® by Kerrigan Advisors; very active buy/sell market predicted for second half of 2020
IRVINE, Calif.--(BUSINESS WIRE)--The auto dealership buy/sell market rebounded dramatically in the second quarter of 2020, driving the first half of 2020 to surpass the first half of 2019, in spite of declines in Q1 2020, according to the just-released Second Quarter 2020 Blue Sky Report® by Kerrigan Advisors. Valuations are now at historic highs and, with dealership earnings at record levels, Kerrigan Advisors predicts that the second half of 2020 could be the most active buy/sell market ever.
With 58 dealership buy/sell transactions in the second quarter of 2020, the overall transaction count for the first half of 2020 reached 113, a 9.7% increase over the first half of 20191. This positions the first half of 2020 nearly in line with 2018’s elevated level, despite the global economic shutdown as a result of COVID-19. This activity level, according to the report, was driven by a rebound in industry profits, an increase in sellers coming to market, and stronger buyer demand.
“We had predicted an uptick in the buy/sell market in the second half of 2020, but the remarkable boomerang of dealership earnings in Q2 brought the buy/sell rebound on even more rapidly, once again proving the resilience of the auto retail business model,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “We saw buyers become increasingly motivated, fueled by strong cash flow from existing operations and low-cost acquisition financing in a declining interest rate environment. Meanwhile, the increasing volume of sellers coming to market was fueled by confidence in their valuations as reduced expenses and higher profits led earnings to exceed pre-COVID levels.”
As industry earnings rebounded throughout the quarter for both the public and private dealers, so too did valuations, according to the report. With average dealership real estate values up 14.9% since 2015, dealership enterprise values, including real estate and blue sky, are now at peak levels.
According to the Blue Sky Report®, the average dealership blue sky increased 3.3% in the second quarter compared to 2019, as buyers priced acquisitions based on pre-COVID earnings and post-shutdown expectations. The report projects that blue sky values will increase in the second half of 2020, a result of historically low interest rates and a reduction in buyers’ cost of capital.
“Many investors believe auto retail will benefit from the growing demand for personal mobility as the virus exposes the potential health risks of public transportation and ridesharing,” continued Kerrigan. “In addition, the business disruption of COVID-19 spotlighted the benefits of economies of scale in a consolidating auto retail environment, as well as the competitive advantage of innovative retailing. We believe these factors will exponentially increase future industry profits, rendering a consolidation strategy highly profitable for investors.”
Kerrigan Advisors identified the following three trends, which are expected to meaningfully impact the buy/sell market for the remainder of 2020 and into 2021:
Highlights from the Second Quarter 2020 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 over 9,000 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 a leading 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 represented on auto retail’s largest transactions, including five of the Top 100 Dealership Groups in the US, more 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 over 9,000 industry recipients 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.
1 Source: The Banks Report, Automotive News, Kerrigan Advisors’ Research