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Dealership Acquisitions on the Rise

CARY, N.C. - The acquisition of dealerships nearly doubled in the first half of 2014 compared to the same period in 2013.

That’s according to The Blue Sky Report from Kerrigan Advisors, along with research gathered from The Banks Report, which highlighted the 95 completed dealership transactions in the first half of 2014, a 75-percent increase over the 54 made in the same period the prior year.

By far the most bought and sold amongst franchises, General Motors accounted for 25 of the 115 individual franchises sold in the transactions, which also reflects the increase in multi-dealership transactions in the first half of the year. Twenty-one of the 95 dealership transactions included multiple dealerships, a 40-percent increase over 2013’s first half.

Despite the attention GM has received over recent recalls, its perceived value in the dealership market has not wavered. In fact, Erin Kerrigan, the founder and managing director of Kerrigan Advisors, shared her insight with Auto Remarketing and explained how GM franchises may have come out of the situation worth more than they’ve been in at least a decade.

“The values of those franchises really improved dramatically and the handling of the recalls was so well done that there’s a lot more faith in the franchise in the long term, particularly for Chevrolet, which is just such a strong brand,” Kerrigan said. “And I think a lot of the buyers recognize that General Motors is on really solid ground, from a financial standpoint.

“If you think about it, even the best of companies go through crises,” Kerrigan continued. “Toyota had a major crisis. It’s how those companies handle the crisis, from a management standpoint, that determines the real value of the business in the long term. And clearly General Motors was able to handle this crisis and that bodes very well for the value of the franchises that represent the company.”

Although the domestic manufacturers’ sales are on the upswing, it’s probably not a good idea to target the first dealership you see as an acquisition prospect.

“One of the challenges that General Motors and other domestic manufacturers have is that there are still a lot of these franchises,” Kerrigan said. “So the average sale per franchise, of units, is much lower for domestics than for the high-volume imports, like Toyota and Honda.”

Kerrigan pointed out that the blue sky value of the domestic franchises is far more market-dependent when compared to their foreign-based competitors. But if found in the right area, buyers are willing to pay a premium to get their hands on those franchises that have high demand but are not oversaturated with supply.

“In some cases, like if you’re in a market in Texas, you have dealerships there where they’re not as over-dealered in the domestic side and you have domestic dealerships making a lot of money,” Kerrigan said. “In those cases, they can be just as expensive as an import store, or approaching the same value.”

Amongst the publicly traded dealer groups, Group 1 Automotive and Lithia lead the way in the first half of the year on the acquisition front. According to the report, their price-to-earnings multiples grew at double the pace of the sector in the second quarter of 2014. The greatest percentage of the dealership transactions, however, were handled by private acquirers, making up 88 percent, or 84, of the total acquisitions in the first half of this year.

The top-10 private acquirers accounted for 60 of those 84 transactions, with Berglund Automotive Group heading the list with 9 total acquisitions.

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