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Buy-sell frenzy set to continue into 2022

2021 will be a record year for the auto dealership transactions. Expect 2022 to be more of the same.

Dealerships have traded hands at a heightened level and have commanded all-time-high prices in 2021, especially as the year comes to a close — trends primed to carry over into 2022, buy-sell experts say.

"We saw a ramp-up in closings starting in Q3 and we expect Q4 to knock the ball out of the park in terms of the number of franchises that trade hands," said Erin Kerrigan, managing director at Kerrigan Advisors, a sell-side firm Irvine, Calif.

Kerrigan Advisors estimated in its third- quarter Blue Sky Report that dealership transactions increased 11 percent to 81 from a year earlier, and from58 transactions in 2019. Transactions, as counted by Kerrigan Advisors, can be single- or multiple-store deals.

Through the first nine months of 2021, Kerrigan Advisors said there were 225 completed transactions, up 21 percent from the same period in 2020.

But with an active fourth quarter, the firm estimates more than 350 transactions will be completed in 2021, which would set a new high, surpassing 2020's total of 289.

Meanwhile, Haig Partners, a buy-sell firm in Fort Lauderdale, Fla., estimated in its third- quarter Haig Report that 133 dealerships sold during the quarter, a 40 percent jump from third-quarter 2020.

Haig's firm is projecting 575 dealerships will be sold in 2021, which would set a record, eclipsing 2015's total of 463 dealerships, which included Berkshire Hathaway Inc.'s megadeal to buy Van Tuyl Group's 81 dealerships.

"At the same time the dealership profits are high, there's a lot of demand from buyers who want to grow," said Alan Haig, president of Haig Partners. "I think that the public companies have certainly embraced a strategy similar to what Lithia's been espousing for the last couple years which is: Many of them want to have dealerships distributed across the country that are close to consumers and then use their digital retailing platforms to sell and service customers that are outside the immediate area. And that is a strategy that's being adopted by many privately owned groups as well."

The public auto retailers have gone on a buying tear this year by completing not only single-store and smaller group transactions, but acquiring some of the largest private groups in the country, including Lithia Motors Inc. buying Suburban Collection, Group 1 Automotive Inc. acquiring most of Prime Automotive Group and Sonic Automotive Inc. buying RFJ Auto Partners Holdings Inc.

Public auto retailers spent more than $2.7 billion in the first three quarters this year on U.S. dealership acquisitions, Kerrigan Advisors said, a record projected to grow significantly with fourth-quarter closings.

"Because of what's going on in the capital markets and with the public companies, activity begets activity," said Mark Johnson, president of buy-sell firm MD Johnson Inc. in Enumclaw, Wash. "So when dealers see other dealers selling, it sort of gets in the back of their head, 'What do they know I don't know?' Typically it's nothing other than that seller has decided, 'This is good timing for me,' and other dealers are seeing the same thing.

"There's dealers that have sold this year that I thought wouldn't really be that interested in selling right now."

Teddy Morse, CEO of Ed Morse Automotive Group of Delray Beach, Fla., described today's buy-sell market as "very active." His group this month bought four stores across Missouri and Illinois in two separate transactions.

"We get offered at least two different deals a week," Morse said. "Some of them are single-point stores, some are groups. And the vast majority we say no to because it doesn't fit our business model for one reason or another."

New heights for blue sky
Both the Kerrigan and Haig reports estimate that the average blue-sky value — the intangible value of a dealership, including goodwill — reached record highs in the third quarter.

Kerrigan's report pegged the figure at $10.3 million, marking the fifth straight quarter average dealership blue sky reached all-time highs. Her firm estimated average blue sky at $9.1 million in the second quarter and $8.5 million in the first quarter.

Haig Partners estimated the average blue-sky value was even higher — $10.9 million in the third quarter, up from $10.3 million in the second quarter and around $9 million in the first quarter.

"We've just seen this explosion of M&A in terms of the number of rooftops that are being acquired and an explosion in dealership values," Haig said.

‘Bigger year'
Buy-sell experts are predicting the brisk deal pace to continue into the new year.

"Based on Kerrigan Advisors' pipeline, I expect 2022 first quarter to be very active and the first half [of 2022] to be as active as the second half of '21," Kerrigan said.

Andy Church, president of U.S. operations at Dealer Solutions Mergers and Acquisitions, a buy-sell firm based in Markham, Ontario, and with a U.S. office in Jupiter, Fla., thinks 2022 could be busier than 2021 for the buy-sell market.

"If '21 is any indication, '22 will actually be a bigger year than 2021," Church said.

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