Dealerships Changing Hands at Record Rate

Written by:
Jim Henry
Wards Auto
October 18, 2021

The question for dealership buyers and sellers is how long the current, favorable environment can last, with demand outpacing supply, record average transaction prices for new and used vehicles, and pent-up demand for parts and service.

There may be some potential headwinds next year, but for 2021, brokers for dealership mergers and acquisitions report the dealership buy-sell market is still red hot.

“Our book of business is at a robust pace, and so is the rest of the industry,” George Karolis, president of the Presidio Group, says in a recent phone interview. “I think we’re at record levels.”

The question for buyers and sellers is how long the current, favorable environment can last,

with demand outpacing supply, record average transaction prices for new and used vehicles, and pent-up demand for parts and service. Cuts in dealership head counts and marketing budgets have also contributed to record profitability.

At the same time, interest rates are low, and for publicly traded dealership groups share prices are high, and that makes it more affordable to purchase dealerships partly with shares of stock, says Brodie Cobb, founder and CEO of the Presidio Group, which has offices in San Francisco and Duluth, GA.

“The one thing that is just unbelievable is how inexpensive capital is today, how inexpensive debt is,” Cobb says in the same conference call with Karolis. “And every time those stocks go up, it gets cheaper and cheaper.”

Another dealership brokerage firm, Kerrigan Advisors, says the total number of completed dealership transactions was 144 in first-half 2021, an increase of 27% vs. a year ago, and on track to surpass a record of 289 buy-sells last year. For the 12 months ended June 30, the total number was 320, up 11%, the company says.

“Today, we are tracking to hit another record,” says Erin Kerrigan, founder and managing director of Kerrigan Advisors, Irvine, CA. In a webinar hosted by the American International Automobile Dealers Assn., she predicts 2021 buy-sells will pass 350 in 2021.

One of those potential headwinds mentioned earlier is that would-be buyers may balk at high prices for dealerships, to the extent that high prices are based on the record profits they’re raking in, in the current highly unusual circumstances.

Earl Hesterberg, president and CEO of Houston-based Group 1 Automotive, says in a conference call to announce second-quarter earnings that the acquisition market is “as frothy as it’s ever been.”

Kerrigan predicts the “froth” Hesterberg describes will last at least well into 2022. “Dealers do not believe their dealerships will fully return to the low margins” at pre-pandemic levels, she says – not even when supply eventually recovers and high demand subsides. “Yesterday’s valuations seem ludicrous with regard to today’s profits.”

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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