Auto dealership merger, acquisition sector is in the fast lane

Written by:
Business Observer Staff
December 16, 2022

Auto dealers who seek a nice exit from the business are in for some good news: the market is hot for acquisitions.

On a national level, two industry surveys recently detailed the trend.

One report, from Kerrigan Advisors, which specializes in dealership valuation and buy/sell trends, found the majority of dealers have a largely positive outlook on valuation over the next 12 months: some 60% project 2022’s record valuations will sustain into 2023.

A second report, from Haig Partners, found that merger activity in the first nine months of 2022 is running at a record-high pace, with 369 dealership acquisitions. That’s up 5% over the 351 acquisitions in the same time frame in 2021, according to the Haig Report. And notably 2021, when 707 dealerships were acquired, was an all-time high for M&A activity in the sector. In addition, at some 41 deals a month, the current pace bests pre-pandemic times, when there were traditionally 25-30 dealership deals per month.

The mix of buyers has changed as well. Public companies have cooled off a bit in terms of acquisitions, buying 32 dealerships so far in 2022, the report found. While that’s above pre-pandemic levels, it’s 60% down from 80 acquisitions in the first nine months of 2021.

“Fortunately for sellers, private buyers have been on an acquisition spree, acquiring 337 stores year-to-date in the third quarter,” the Haig Report states, which is “24% more than the same period last year. Private dealers have found themselves with loads of cash thanks to high profits and tax-free PPP funds, and many are choosing to invest it by buying more dealerships.”

“The auto retail industry has entered a new phase,” Haig Partners President Alan Haig says in a statement. “Higher rates will reduce purchasing power for consumers and drive up expenses for dealers. The good news is that there is still a significant amount of pent-up demand for new vehicles. We think it will take years for the factories to make up for all the lost sales and during that time dealers should continue to enjoy strong profits. Our belief is shared by many dealership buyers, as proven by the high demand for dealerships today…Times are still very good for sellers.”

Tampa-based Morgan Automotive Group, one the 10 largest dealerships in the country, exemplifies the trend, at least on the buy side.

In May it acquired Jim Browne Chrysler Jeep Dodge Ram Tampa Bay and Jim Browne Chevrolet Tampa. Those deals, for which financial terms weren’t disclosed, brought the company’s overall dealership count to 55, including 23 in the Tampa Bay region; five in Sarasota-Bradenton; and six in Fort Myers-Naples. That count has grown more than 70% since 2019, when it had 32 dealerships.

The acquisition surge at Morgan continued in August, when it acquired three dealerships — Lexus of Sarasota, Honda of Sarasota and Land Rover — under the Wilde brand name in Sarasota. According to Morgan Automotive Group’s website, those three dealerships have since been renamed Lexus of Sarasota, Honda of Sarasota and Jaguar Land Rover Sarasota. Sarasota County property records show LLCs connected to Morgan Automotive Group paid $30 million for the Lexus property; $9.5 million for the Land Rover property; and $9 million for the Honda property.

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.

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