The rise in dealership earnings at the end of the second quarter portends an increase in blue sky values in the second half of 2020.
Though new and used car margins are expected to decline as inventories return to pre-COVID levels, dealership expense reductions are likely to sustain, resulting in a higher margin auto retail business for the foreseeable future. Also, auto sales are projected to rise for the remainder of 2020 and into 2021, as OEMs increase production and incentive spending remains strong. Historically low interest rates will buoy auto sales growth, further supporting an increase in dealership earnings and rising valuations.
Another driver of improved valuations in the second half of 2020 is the reduction in buyers’ cost of capital, also a result of today’s low interest rate environment. Banks, which are sitting on record levels of deposits, are more eager to lend to growing dealership groups given the financial strength of the auto retail industry. Buyers are reporting increasing access to low-cost financing, reducing the equity required for acquisitions. The resilience of the auto retail business model is also attracting more investors to the industry. These investors believe scale and innovation will exponentially increase future industry profits, rendering a consolidation strategy highly profitable.
As valuations increase and consolidation becomes the name of the game, more single point dealers and family-run dealership groups are deciding the time is right to sell. The volume of sellers coming to market in 2020 is up markedly since 2019. In this environment, Kerrigan Advisors expects the buy/sell market for the remainder of 2020 and into 2021 to be extremely active, perhaps one of the most active on record.
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.