Auto Dealership M&A Stuck In Neutral

Written by:
Jeff Sheban & Deborah Balshem
April 13, 2020

With the gears of the economy grinding to a halt over COVID-19-related quarantines, it should come as no surprise that auto dealership M&A – coming off a strong year in which 233 transactions were completed nationwide – has stalled.

Just last month one of the nation’s largest dealership groups – Georgia-based Asbury Automotive Group – said it was terminating its $1 billion acquisition of 17 new car franchises from Texas-based Park Place Dealerships “to preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak.”

And AutoNation, the nation’s largest auto dealership chain, said last week it was furloughing 7,000 employees, slashing executive pay and postponing more than $50 million of capital spending as sales dropped by half in March.

Amid the uncertainty, investment banks and advisors who specialize in the sector are telling clients to hold off on selling their dealerships until the crisis has passed or the stimulus package has taken effect, “hopefully sometime this summer,” says Erin Kerrigan, founder and managing director of Kerrigan Advisors, an Irvine, California-based auto industry sell-side advisory firm.

Dave Cantin, CEO and founder of automotive dealership M&A firm Dave Cantin Group, says he had roughly a dozen deals nationwide preparing to close in the first half of this year, with an average value over $25 million. None are cancelled, but all are postponed, he adds.

But as bad as things look now, sector experts say the still-healthy industry has unique attributes and could see a rebound in transactions later this year and into 2021.

Plenty of outside investment capital looking to get in, aging owners ready to exit, continuing profitability in good times and bad, and the essential nature of car ownership are among the reasons the sector can get back in gear quickly, the experts say.

Cantin says there is likely to be a spike in car sales on the other side of COVID-19. More than one million car leases come due every month, and many older cars that have been sitting idle for a while may need to be upgraded.

Moreover, a percentage of people who relied on mass transportation may be apt to move to private transportation, as fears of the coronavirus virus linger.

And though almost 17 million people have filed for unemployment in the U.S., the car manufacturers have already rolled in to offer financing relief, with General Motors announcing 0% interest loans for 84 months and deferred payments for the first six months. Ford is also offering six months payment relief and companies such as Toyota and Hyundai have launched similar programs.

“The good thing about the sector,” says Andrew Dickow, managing director of Greenwich Capital Group, “is that people need to drive, and eventually auto sales will stabilize.”

James Taylor, managing director of automotive at SunTrust Robinson Humphrey, says most dealerships are healthy, and “unless the economy is crippled for 90-120 days, most dealerships will not run out of money.”

Once M&A activity starts back up, there are plenty of private equity and family offices prepared to acquire dealerships, he says.

“Some smart investors are getting serious about buying dealerships in a significant way, including some of the nation’s largest private dealership groups with huge balance sheets,” Kerrigan adds.

Actor, musician and businessman Mark Wahlberg might be ahead of the curve. Last month the celebrity doubled down on the new car business, acquiring Haydocy Buick GMC in Columbus, Ohio – directly across the street from Mark Wahlberg Chevrolet, which he and a partner opened in 2018 after buying out a Chevy dealership. It could be a small sign of the turnaround to come.

“The automotive industry always finds a way to bounce bank, it’s just a question of how long it will take,” Cantin says.

Taylor agrees. “We are very, very, very optimistic on the ability of the sector to turn itself around in a very short period of time – quarters, not years.”

Jeff Sheban is Mergermarket’s Chicago-based Midwest Editor; Deb Balshem is a senior reporter who covers multiple industries from Fort Lauderdale.

About Kerrigan Advisors

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.

Share this post
In The News

We look forward to connecting with you.

Contact us to learn more about Kerrigan Advisors’ sell-side services.
All of our conversations are 100% confidential.