Dealership consolidation likely will continue at a rapid clip this year, as smaller retailers face increasing challenges from large competitors and are tempted by record-high valuations, according to a buy-sell expert.
Buy-sell activity was expected to hit a record last year and "is likely to continue at today's high pace primarily due to buyer demand," Ryan Kerrigan, a managing director of Kerrigan Advisors, an Irvine, Calif., sell-side firm, said during a presentation recorded in December and shown Wednesday during the NADA Show.
"This pandemic highlighted the incredible resilience of the auto retail business model," Kerrigan said. "We also saw the benefits of scale and innovation in our industry to start to supersize profits. And this plays directly into the story of strong buyer demand."
Kerrigan Advisors predicted late last year that buy-sell transactions would reach 250 for 2020, which would be up from 233 in 2019 and exceed the 2015 peak of 242.
Kerrigan said the coronavirus pandemic led some dealers on the fence to accelerate their plans to sell, as some simply weren't interested in evolving along with the changing industry.
"After managing through the harrowing days of COVID and shutdowns, it's certainly caused some to pause and think about how long they intended to stay in this business," Kerrigan said.
Many deals last year and into early 2021 have involved multiple dealerships. It's a trend that Kerrigan Advisors has seen as the percentage of dealership groups with five or fewer stores has shrunk over the past decade-plus, while the percentage of those with six or more stores has significantly grown.
"These businesses start to have real scale and the ability to invest in new capabilities and technology," Kerrigan said. "And that puts real pressure on smaller dealers."
Through the first half of 2020, there were 26 multidealership transactions, compared with 23 during the same period in 2019, according to Kerrigan Advisors and The Banks Report.
Transactions recently closed by Kerrigan's firm include a November sale of nine stores in California and Arizona from client Keyes Automotive Group to publicly traded Lithia Motors Inc. and a sale this month of two Florida dealerships from client Fields Auto Group to Lithia.
"We're seeing larger deals continue to get done," Kerrigan said.