It sounds wildly unlikely, but 2020 is on track to be an all-time record year for dealership profits, and dealership brokers say that’s fueling a land rush of dealership acquisitions this year and next, and probably beyond.
“Not surprisingly, with record earnings, both public and private dealership valuations are exceeding prior highs,” Erin Kerrigan, founder and managing director of Kerrigan Advisors of Irvine, CA, says during a phone interview.
Kerrigan says some factors driving unusually high profits per vehicle won’t last indefinitely, such as lower-than-usual new-vehicle inventories – although higher volume next year would help offset that.
Some factors probably will last, such as lower expenses due to leaner staffing, the move to more efficient online and multichannel selling, and the trend towards greater F&I revenue per vehicle, she says.
A competitor, Alan Haig, president of Haig Partners of Fort Lauderdale, FL, says high dealership profitability in the midst of a pandemic and a recession demonstrates dealerships are a good investment.
“I’m highly confident 2020 is going to be higher than any other year we’ve seen” for dealer profitability, he says in a phone interview.
Year-to-date through September, the average dealership pretax net profit was $1.3 million, Haig says, citing National Automobile Dealers Assn. figures. The prior-year record year is 2015, at an average pretax profit per store of about $1.5 million, and 2020 is a shoo-in to beat that, Haig says.
In the third quarter, according to the latest Haig Report, 95 dealerships changed hands, a 9% increase over third-quarter 2019. Year-to-date, Haig says buy-sell activity was at 222 dealerships, down 7% from 239, as the industry took a pause in the year’s second quarter. However, Haig says acquisitions of publicly traded new-vehicle retailers doubled to 26 year to date.
According to Kerrigan’s Blue Sky Report for the third quarter, year-to-date buy-sells were up about 16%, to 186 dealership transactions. “2020 is on track to be the most active buy/sell market on record,” the report says.
Big Moves
Kerrigan notes that unusually, four of the Top 100 U.S. dealership groups sold all or most of their dealerships this year: John Eagle Auto Group, Dallas; Keyes Automotive Group, Van Nuys, CA; Park Place Dealerships, Dallas; and Staluppi Auto Group, North Palm Beach, FL.
Asbury Automotive Group, Duluth, GA, which acquired most of Park Place in 2020, is on a campaign to more than double in size in terms of annual revenue, from about $8 billion in 2020 to $20 billion in 2025. That would include an additional $5 billion in annual revenues from acquisitions in the next five years.
Lithia Motors Inc., Medford, OR, this year announced plans to add $3 billion to $5 billion in annual revenues from acquisitions every year for the next five years, part of a strategy to more than triple annual revenues to $50 billion.
Lithia recently announced it would acquire nine locations from Keyes Automotive Group, representing $1.4 billion in annual revenue. In separate transactions, Lithia also announced this year it would acquire a total of 10 John Eagle dealerships.
Inevitably, the demand for dealerships is driving up prices, but there also are some natural constraints on demand, the brokers say.
Importantly, only the biggest dealership groups can afford to acquire big dealership groups, Kerrigan says. “As we get bigger, the pool of buyers gets really small,” she says. “It’s a hard club to get into.”
Kerrigan Advisors is the premier sell-side advisor and thought partner to auto dealers nationwide. The firm advises the industry's leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Kerrigan Advisors has represented some of auto retail's largest transactions and advised more of the largest dealership groups in the US than any other buy/sell firm in the industry. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, the firm does not take listings, rather they develop a customized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors' sell-side advisory and capital raising services, the firm also provides a suite of consulting services including growth strategy, market valuation assessments, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate due diligence.
Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report®, which includes Kerrigan Advisors' signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments.—To download a preview of the report, click here.—The firm also releases monthly The Kerrigan Index™ composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail.—To access The Kerrigan Index™, click here.—To read the—2023 Kerrigan OEM Survey, click here.—Kerrigan Advisors also is the co-author of NADA's Guide to Buying and Selling a Dealership.
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