Specter of Tax Hikes Driving Dealership M&A Activity

Written by:
Jim Henry
Wards Auto
December 29, 2021

December is putting an exclamation point on what’s likely to be a record year for dealership mergers and acquisitions.

According to firms that broker dealership buy-sells, that’s because the sellers want to get deals done before Jan. 1, out of concern that Congress may pass higher capital-gains taxes that could take effect next year.

“Sellers are laser-focused on closing before the end of the year,” because the potential tax changes could greatly increase the tax bill for selling dealers, says Erin Kerrigan, co-founder of Kerrigan Advisors, Irvine, CA.

Major deals that close this month include: on Dec. 17, Asbury Automotive Group’s acquisition of one of the nation’s biggest, privately held megadealer groups, Utah-based Larry H. Miller Dealerships, for about $3.1 billion. The deal, first announced Sept. 29, represents a total of about $5.7 billion in annualized revenue. Asbury is based in Duluth, GA.

On Dec. 7, Sonic Automotive, Charlotte, NC, announces closing a $700 million deal, which was announced Sept. 17, to buy another big privately held group, RFJ Auto Partners, representing about $3.2 billion in annualized revenue.

In a recent webinar hosted by the American International Automobile Dealers Assn., Kerrigan predicts industry buy-sells for full-year 2021 will be a record high, with a total of at least 350 transactions representing more than 600 franchises.

In separate phone interviews, a couple of Kerrigan’s competitors agree the proposed tax changes are a factor behind the sense of urgency among sellers to close deals before Jan 1.

“It’s the sellers’ desire to exit before the end of year,” says Alan Haig, president of another dealership advisory firm, Haig Partners, Fort Lauderdale, FL.

Earlier this year, Haig said there was concern in the dealership community that a sharply higher capital-gains tax could be part of President Biden’s Build Back Better plan in 2021. That hasn’t materialized, but he says selling dealers don’t want to take a chance it could pass in 2022.

George Karolis, president of the Presidio Group, Duluth, GA, says it’s not clear how high capital-gains taxes could go, but “they’re not going to be lower,” he says. “Those that are under contract now would much prefer to get them done this year.”

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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