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Dealership M&A Activity Declines in Third Quarter; 2017 Increases Likely, according to The Blue Sky Report™ released by Kerrigan Advisors

Pace of acquisitions slow for balance of 2016; incoming Trump administration motivating sellers to push closings to 2017, while more foreign investment anticipated next year

IRVINE, Calif.--(BUSINESS WIRE)--Dealership M&A activity declined by 7% in the first nine months of 2016 YOY, with sellers likely to push closings to 2017 in anticipation of potential tax benefits from the incoming Trump administration, according to analysis from the Blue Sky Report™, a Kerrigan Quarterly, which was released today. Overall, premium pricing declined in the first nine months of the year, but buy/sell activity remained strong with a 32% increase in the number of multi-dealership groups selling in the first nine months of 2016.

Today’s Blue Sky Report, published by Kerrigan Advisors, is the auto industry's most comprehensive and authoritative quarterly report and analysis of dealership mergers and acquisition activity and franchise values. It includes analysis of the first nine months of 2016 - laying out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments for the quarter - and offers a detailed view of public and private company dealership acquisition activity.

Key data and analysis from the report includes:

  • 172 dealership buy/sell transactions completed in the first 9 months of 2016[1] versus 184 transactions in the first 9 months of 2015.
  • Buy/sell activity declined slightly in the 2nd and 3rd quarter, resulting in a 7% decline year-to-date.
  • Pace of acquisition activity is not likely to increase in balance of 2016.
  • Transaction sizes are rising and multi-dealership groups are coming to market at an increasing pace.
  • For the third quarter of 2016, Kerrigan Advisors’ average blue sky multiples remained relatively stable.
  • While premium pricing of auto dealerships is on the decline, most buyers are willing to acquire dealerships within Kerrigan Advisors blue sky multiples.
  • The auto retail markets made a dramatic shift to high margin trucks and SUVs, driven by low gas prices.

“Buy/Sell activity remains strong but, with the expectation of a tax reduction from the Trump Administration, 4th quarter activity could decline as sellers hope for a more favorable tax rate on their sales proceeds in 2017,” said Erin Kerrigan, Managing Director of Kerrigan Advisors.

The report identifies three key trends moving forward into 2017:

  • Auto retail’s hedged business model sustains dealership profitability.
  • Economies of scale and scope drive consolidation.
  • Foreign interest in US auto retail rises.

“A trend we are watching closely for 2017 is the entry of foreign investors into the market,” continued Kerrigan. “Because international companies are attracted to the franchise protections afforded to US auto dealerships and are seeking geographic diversification beyond their borders, we expect foreign investors to make their mark on 2017 with at least one or two completing sizable acquisitions.”

Kerrigan Advisors is deeply involved in the Buy/Sell Market having sold two of the top 100 dealership groups, Sam Swope Auto Group and the Carbone Auto Group, in the last 12 months and is currently engaged to sell two additional top 100 groups. Kerrigan Advisors extensive experience representing the largest dealership groups in the country provides the firm with a unique perspective on the trends shaping the industry and today’s franchise values.

The Blue Sky Report™, a Kerrigan Quarterly, is published four times a year and includes Kerrigan Advisor’s 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, composed of the seven publicly traded auto retail companies with operations focused on the US market. The KAR Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail. 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 dollars 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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