According to The Blue Sky Report® by Kerrigan Advisors, buy/sell market expected to finish at 2018 levels; average dealership earnings annualizing to 9.3% increase, on pace to reach 2015 peak profit level of $1.5M
Irvine, CA – December 16th, 2019 – The 2019 auto dealership buy/sell market picked up speed during the third quarter and is now poised to register another 200+ transaction year in 2019 – meeting or exceeding 2018 activity levels with over 160 completed transactions at the end of the quarter1. According to the just-released Third Quarter 2019 Blue Sky Report® by Kerrigan Advisors, the growth in the buy/sell market is supported by a healthy US economy, led by consumer spending and spurred by a reduction in the Federal Funds Rate by a quarter percentage point – the third such rate reduction since July. And fueling the strength of the buy/sell market is strong dealership earnings growth, largely driven by used vehicles and fixed operations.
“The industry’s ability to grow earnings despite flat new vehicle sales really shows the resilience of the dealer model,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “That impresses investors and, with more sellers coming to market, buyers are here, seeking acquisitions and investment in auto retail. We see an expanding pool of well-funded buyers that will easily absorb the increase in sellers – and keep the buy/sell equilibrium into 2020.”
That balance is based on positive investor sentiment, driven by growing industry profits. The best indication is the outperformance of The Kerrigan Index™, which is up an incredible 53% through November 2019, surpassing the S&P 500’s performance by 111%. The Kerrigan Index is now just 6% below its June 2015 peak.
The buy/sell market, and the strength of the economy, has also influenced the acquisition strategy of US public dealership groups. “Even though the publics reduced their acquisitions spending in 2019, we believe this was a byproduct of the 2018 decline in their market capitalizations,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors. “Considering their year-to-date valuation rebound, we expect the publics’ US dealership acquisition spending to rise over the next six months, as evidenced by Asbury’s recent announcement of its billion-dollar acquisition of Park Place Dealerships.”
Kerrigan Advisors’ The Blue Sky Report found that since the first quarter of 2019, the publics average blue sky multiple increased 48%, as a result of rising stock prices. At the end of the third quarter, the publics’ blue sky multiples averaged 6.5x. At this level, US dealership acquisitions are more attractive targets.
In addition, the report identified the following three trends, which are expected to meaningfully impact the buy/sell market into the first quarter of 2020.
Highlights from the Third Quarter 2019 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. It 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, click here.
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. The company 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.
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, The Economist 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 US auto retail buy/sells and capital-raising 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 his 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 sell-side advisor and thought partner to auto dealers nationwide. The firm advises the industry’s leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. 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 develops a customized approach for each client to achieve their 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 due diligence.
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 access 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’ Founder and Managing Director, Erin Kerrigan, is a recognized 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, Automotive News’ Canadian World Congress, AICPA, and NADC. She has also been quoted numerous times by the Wall Street Journal, CNBC, Bloomberg and The Economist and has been a keynote speaker for events hosted by American Honda Motor Company, Audi of America, US Trust, Bank of America, Ohio Automobile Dealer Association, and SunTrust Bank. 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.
1 Source: The Banks Report & Kerrigan Advisors Analysis