Pace of Dealership Acquisitions Slows in Q2

Written by:
ADT Staff
Auto Dealer Today Magazine
September 10, 2019

Experts say auto dealers’ ability to shift resources to higher-margin departments when new-vehicle sales slow contributes to a resilient business model.

IRVINE, Calif. — The 2019 auto dealership buy/sell market stayed “steady and on course” for yet another 200-plus-transaction year in 2019, with 103 completed transactions year-to-date, according to the Second Quarter 2019 Blue Sky Report by Kerrigan Advisors.
The 49 transactions recorded in Q2 represent a 9.3% decline from the prior quarter.

Read: Kerrigan: Dealership Buy/Sell Activity Up 38% in Q1

“The buy/sell market moved at a slower pace during the second quarter,” said Erin Kerrigan, the firm’s founder and managing director. “Yet even with the second quarter’s decline, 2019 is tracking to be another 200-plus 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.

“The global trade war has clearly caused uncertainty in the investment community, leading to a flight to higher-quality, less risky assets.”

Despite recession fears, Kerrigan 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.”

Analysts found a decline in new vehicle sales spurred dealers to turn to their higher-margin business segments, including used-vehicle sales, F&I, and fixed ops. The result was a marked increase in gross profit and earnings.

Notably, the number of multidealership transactions declined in the first half. Kerrigan analysts said the rise in single-store 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,” said Managing Director Ryan Kerrigan. “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.”

Originally posted on Auto Dealer Today.

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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