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Auto Industry Experiences Monumental Shifts in Public Auto Retail Valuations, According to The Blue Sky Report™ Released by Kerrigan Advisors

New report analyzes dealership buy/sell activity for Q1 2016; overall activity, including multi-dealership transactions, size of groups coming into market, and luxury import transactions, continues to rise; publics’ blue sky multiples decline: valuations at parity or below many private acquisition opportunities

IRVINE, Calif.--(BUSINESS WIRE)--U.S. dealership buy/sell activity continued to rise in the first quarters of 2016, including growth in multi-dealership transactions, the size of groups coming into market, and luxury import transactions, according to The Blue Sky Report™, a Kerrigan Quarterly, which today released analysis of the first quarter of 2016. But, the report reveals, this activity was accompanied by a monumental shift in public market valuations of auto retail stocks, putting a chill on public company acquisition activity. Year to date, The KAR Index™ (The Kerrigan Auto Retail Index) declined by 11.8% and is down 30% from its high in June 2015.

“For public companies to trade at parity with private dealership groups is highly unusual. In most industries, when public consolidators decline in value, private companies quickly follow suit,” said Erin Kerrigan, Managing Director of Kerrigan Advisors. “This aberration may be explained by auto retail’s continued fragmentation and domination by private companies. It should be noted that the publics represent just 8% of industry revenue and a minority of industry acquisitions. Nevertheless, these declines are something to be watched and could be a leading indicator for future blue sky values.”

The report from Kerrigan Advisors is the auto industry's most comprehensive and authoritative quarterly report and analysis of dealership buy/sell activity and franchise values. Laying out the high, average, and low multiples for each franchise in the luxury and non-luxury segments for the quarter, the report offers a detailed view of public and private company dealership acquisition activity.

According to the report, key activities influencing trends in the first part of the year were the completion of a few very large acquisitions, including AutoNation’s purchase of the Allen Samuels Group in Texas and Fremont Private Holdings purchase of Morrie’s Automotive in Minnesota. Among the leading buy/sell trends, The Blue Sky Report identifies the following three as shaping the market for the balance of 2016:

  • Private buyers and new entrants dominating 2016’s buy/sell market
  • Acquisition financing terms drive purchase price
  • Blue sky values increasingly based on multi-year average earnings

“While the 2016 buy/sell market is expected to be as active as 2015’s, we anticipate greater pricing disparity as industry growth plateaus and dealership earnings come under pressure,” continued Kerrigan. “There seems to be a growing divide between the bid/ask spread in the buy/sell market. Sellers have very high pricing expectations, particularly in the luxury market, and buyers are increasingly challenged to achieve their return on investment requirements.”

The Blue Sky Report™, a Kerrigan Quarterly, is published four times a year and includes Kerrigan Advisors’ signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments. The multiples are based on Kerrigan Advisors’ view of franchise values in the current buy/sell market and can be applied to adjusted pre-tax dealership earnings to estimate blue sky value. To download the report, click here.

Kerrigan Advisors also releases a monthly index, The KAR Index, designed to help public and private auto retailers understand the true value of their dealerships, while also providing key insights into factors influencing valuations of these public companies, with broader implications for the auto industry as a whole. To access the KAR Index™, click here.

Erin Kerrigan is 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 and the Wall Street Journal.

About Kerrigan Advisors

Kerrigan Advisors is a national dealership buy/sell advisory firm focused on providing a high level of client service for dealership sellers. Led by a team of veteran advisors who have represented transactions totaling over $2 billion in automotive, private equity, and investment banking, Kerrigan Advisors customizes each sale process to maximize the seller’s transaction proceeds. With the most comprehensive buyer database in the industry, Kerrigan Advisors has the industry context and expertise to match each seller with the right buyer.

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, who authors the report, 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. Her expertise is also featured in a monthly column for Dealer Magazine.

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