Dealerships Seek Outside Financing to Stave Consolidation, Report Says

Written by:
Nicole Casperson
Auto Finance News
June 14, 2018

Private dealers are partnering with outside capital to finance their growth plans and it’s being driven by fresh investment and capital from new players — including international buyers — entering the market, according to a report from Kerrigan Advisors released Wednesday.

Dealerships are seeking more outside financing to avoid the increase in consolidation seen across the industry. Although transactions declined quarter over quarter, the number of franchises represented in each transaction increased by 45%. As a result, the total number of franchises sold in 1Q remained on pace with 2017, according to the latest Blue Sky Report.

Based on this trend, Kerrigan Advisors have defined the market into two categories. First, buyers who have outside capital and the resources to embrace and drive change. The other represents sellers who are increasingly reliant on OEM incentives for profitability as they are “concerned about how coming changes will impact generational succession plans.”

Smaller dealers are unlikely to be able to acquire those funds and will seek out mergers and acquisitions, according to the report. Take, for example, AutoCanada’s acquisition of Grossinger Automotive Group. The report claims that it’s the “largest transaction ever made in auto retail by a non-U.S. company.”

Other data from the report includes:

  • Multi-dealership transaction activity increased 27% in the first quarter of 2018, compared to 2017. Kerrigan Advisors expects the pace of multi- dealership transactions to remain high in 2018.
  • Among franchises being acquired, domestic franchises (44%) maintained their leading position with the highest buy/sell market share, followed by import non-luxury franchises (40%) and import luxury franchises (16%).
  • Import franchises had the highest turnover rate– a reflection of high buyer demand and low franchise supply. The supply/demand imbalance of many import franchises also results in higher blue sky values and multiples.
  • U.S. public auto retailers’ U.S. acquisition spending increased 62% in the first quarter of 2018, compared to Q1 2017. At this spending level, public retailers are tracking towards over $1.5 billion of U.S. acquisition spending in 2018, a level that would exceed 2014’s peak level.

To download the full report, click here.

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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