Buy/sell market continues strong year with 49 completed transactions in Q2 2019; global trade war brings investors to market; dealership business model proves resilience with increased gross profit, according to Q2 2019 The Blue Sky Report® by Kerrigan Advisors.
Irvine, CA – September 9th, 2019 – The 2019 auto dealership buy/sell market stayed steady and on course for yet another 200+ transaction year in 2019, with 103 completed transactions year-to-date. According to the just-released Second Quarter 2019 Blue Sky Report®by Kerrigan Advisors, a decline in new vehicle sales spurred dealers to turn to their higher margin business segments, resulting in an increase in gross profit and earnings.
“The buy/sell market moved at a slower pace during the second quarter,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “Yet even with the second quarter’s decline, 2019 is tracking to be another 200+ transaction year – the sixth consecutive year at this elevated level. Kerrigan Advisors expects transaction activity to remain at today’s elevated pace through the remainder of 2019 and into 2020.”
Kerrigan noted that since 2014, an estimated 1,000 dealers have sold their businesses, representing 12% of the total dealer network. Sellers continue to come to market at a high rate, while the buyer pool grows with new capital seeking investment in auto retail thanks to a diversified and high-margin business model that hedges against an uncertain economy.
Despite recession fears, Kerrigan Advisors expects dealership buy/sell activity to remain strong for the remainder of 2019. “The global trade war has clearly caused uncertainty in the investment community, leading to a flight to higher quality, less risky assets,” said Kerrigan. “Auto retail is emerging as one of those asset classes. High net worth individuals, family offices and Wall Street investors recognize the counter cyclical measures dealers can take to sustain profitability, even when new car sales turn south. Auto retail’s nimble model makes the industry a highly attractive investment in a time of greater economic uncertainty.”
This year’s earnings increase, forecasted in Kerrigan Advisors’ prior Blue Sky Reports, highlights the strength and sustainability of the auto retail business model. The continued shift to higher margin profit centers such as used vehicle sales, F&I, and fixed operations also reflects the reported record earnings in the second quarter by public dealer groups. In their quarterly earnings calls, the groups noted their continued success augmenting new vehicle gross profits with record F&I income per vehicle sold. This is another indication of the industry’s ability to identify growing profit centers despite reduced new vehicle sales and gross margins. Indeed, in the first half of 2019, the industry’s average blue sky value reversed a four-year downward trend, driven by the first increase in average dealership profits since earnings peaked in 2015.
According to the report, in the first half of the year the number of multi-dealership transactions also declined. The rise in single dealership transactions may reflect “franchise pruning” that many organizations are currently undertaking. “Both the public groups and large private dealership groups are capitalizing on their ability to jettison underperforming dealerships and redeploy their capital into higher ROI investments in today’s active buy/sell market,” noted Ryan Kerrigan, Managing Director of Kerrigan Advisors. “Among the franchises being acquired, domestics continue to grow their market share, because buyers are attracted to their lower blue sky multiples and higher expected ROI.”
In addition, the report identified the following three trends, which are expected to meaningfully impact the buy/sell market through the remainder of 2019 and into 2020.
Highlights from the Second Quarter 2019 Blue Sky Report® by Kerrigan Advisors include:
The Blue Sky Report®, published by Kerrigan Advisors, is the auto retail industry’s most comprehensive and authoritative quarterly report on dealership M&A activity, as well as franchise values. It includes analysis of all transaction activity for the year, and lays out the high, average and low blue sky multiples for each franchise in luxury and non-luxury segments.
For more details and to preview the report, click here.
Kerrigan Advisors is the leading sell-side advisor and thought partner to auto dealers nationwide. Since its founding in 2014, the firm has led the industry with the sale of over 275 dealerships representing $9 billion in client proceeds, including the third largest transaction in auto retail history – the sale of Jim Koons Automotive Companies to Asbury Automotive Group. 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. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, Kerrigan Advisors does not take listings, rather they develop a customized sales approach for each client to achieve their personal and financial goals. In addition to the firm’s sell-side advisory services, Kerrigan Advisors also provides a suite of consulting and investor 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 Dealer Survey, click here. To read the 2024 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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