What is driving all the buy/sell activity?

Written by:
Ryan Kerrigan
Kerrigan Advsiors
May 2, 2018

As we have covered extensively, the strength of the buy/sell market continues.— For each of the last five years, there have been 200 or more transactions, which marks a notably strong transaction market for auto retail.— Recently in Dealer Magazine, we characterized the different types of buyers currently making acquisitions, but that does not automatically explain this increased level of activity.— Why are so many dealers choosing to sell?— In addition to generational transfers, which have been a driver of transaction activity for decades, we believe that smaller dealership groups are competing at a significant disadvantage to larger groups in today's environment, and that is accelerating transaction activity. The number of dealership groups with 10 or more stores has increased dramatically over the last seven years, climbing from 82 to 160.

Chart I Dealership Groups with Greater than Eleven Dealerships, 2011-2017e Source: NADA and Kerrigan Advisors Research

A key driver in this growth relates to the expense structure. We are seeing SG &A (sales, general and administrative) expenses rising significantly in recent years, even as many dealers continue to enjoy rising top and bottom lines.

Chart II Average Dealership SG &A Expenses as a Percentage of Gross Profit, 2011 to 2018 Source: NADA and Kerrigan Advisors Analysis

Chart III Sales, General and Administrative Expenses as a Percentage of Gross Profit, 2017 Source: NADA, Public Company Filings and Kerrigan Advisors Analysis

This is a powerful rationale for consolidation for both buyers and sellers, and a trend that will continue for the foreseeable future.

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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