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Major Acquisitions Skyrocket U.S. Dealership Buy/Sell Activity — Up 89% Year-Over-Year

IRVINE, Calif.–(BUSINESS WIRE)–U.S. dealership buy/sell activity hit new highs in the first three quarters of 2014, soaring to an 89% increase year-over-year, according to the just released Kerrigan Quarterly Blue Sky Report for Q3 2014. The report, produced by Kerrigan Advisors, is the auto industry’s most comprehensive and authoritative quarterly report and analysis of dealership buy/sell activity and franchise values.

According to the Q3 report, which covers activity through October 1st, 2014, the entry into the market of new players has driven price expectations to record peaks, most notably influenced by Berkshire Hathaway’s acquisition of Van Tuyl, the largest acquisition in the auto industry’s history. The report also noted that the completion of Lithia’s acquisition of DCH has had a significant impact on blue sky valuations.

“These two mega deals have motivated a new wave of sellers to consider entering the market, while also pushing pricing expectations to peak – and likely unsustainable – levels,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “In addition, they are inspiring a new class of capital – private equity and family offices – to acquire dealerships.”

The Kerrigan Quarterly Blue Sky Report, which lays out the high, average and low multiples for each franchise in the luxury and non-luxury segments for the quarter, also offers a detailed view of public and private company dealership acquisition activity. In addition to the continued rise in transaction activity – 148 dealership transactions in the first three quarters of 2014, versus 78 in the same period in 2013 – key findings this quarter include the dramatic increase in private capital seeking to enter the industry, and the projection that 2014 will prove to be the most active buy/sell year in over a decade, with over 200 transactions completed by year’s end. Furthermore, according to the report, because the capital markets are increasingly facilitating ever larger transactions, the number of multi-dealership acquisitions more than doubled in the first nine months of 2014 versus the same period 2013, and that the financing available for large acquisitions has contributed to the rise in blue sky values.

In conjunction with the release of the report, Kerrigan Advisors also announced that, in line with the evolving needs of the market, it has launched a new private equity and family office advisory practice to be led by Ryan Kerrigan, who has worked in the private equity sector for over 13 years, including leading transaction origination for a middle-market private equity firm.

“It is not surprising that private capital is seeking financial exposure to auto retail. These investors see a profitable, fragmented industry with tremendous consolidation opportunities (the top 125 dealership groups represent only 25% of industry’s sales),” said Ryan Kerrigan. “They also see attractive exit opportunities in the public markets through a future IPO (auto retail’s stock market capitalization relative to market size is one of the smallest in our economy). Private investors also see opportunity in a changing industry in which online sales, no-haggle pricing, and new forms of car ownership create attractive new business models that are less reliant on expensive human capital.”

Report Highlights

  • Total transaction activity rose 89% in the first three quarters of 2014, as compared to first half 2013
  • Multi-dealership transactions are up 106% year to date (10/1/14).
  • Import franchises represented the majority of transactions YTD and were disproportionally represented relative to their franchise market share, although interest in domestics remains strong.
  • Buyers continue to be interested in a diverse set of franchises, with most franchises having at least one buy/sell during the first three quarters of 2014.
  • Public retailer acquisition spending increased 163% YOY, on track for over $1 billion in US acquisition spending for 2014, the highest level since 2004.
  • Lithia’s acquisition of DCH represented 68% of the growth in public spending during the period.
  • Lithia and Group 1 were the most active acquirers, spending a combined $713M, 84% of the auto dealership acquisition spending for the period.
  • The publics continued to focus on non-auto dealership and international investing.
  • Private buyers continue to dominate the buy/sell market.

“The continued increase in the supply of dealerships for sale, coupled with the slowing growth rate in car sales (3% expected in 2015) may negatively impact values in the near future,” continued Erin Kerrigan. “While Berkshire’s market entrance will certainly create an attractive exit opportunity for many valuable dealerships and dealership groups, it will not likely result in an increase in blue sky multiples. Meanwhile, a decline in the publics’ valuation multiples will limit their ability to make accretive acquisitions at premium prices.”

The Kerrigan Quarterly Blue Sky Report, which is published four times a year, includes Kerrigan Advisors’ signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. The multiples are based on Kerrigan Advisors’ view of franchise values in the current buy/sell market and can be applied to adjusted pre-tax dealership earnings to estimate blue sky value. To download the report, click here.

Kerrigan Advisors’ market analysis is also showcased at the following conference venues where Erin Kerrigan is featured as keynote/presenter:

January 2015

  • JD Power Automotive Summit: Trends Driving the Buy/Sell Market and Buy/Sell Panel
  • NADA 2015 Workshop: Strategies for Increasing Your Business’ Value

About Kerrigan Advisors

Kerrigan Advisors is a national dealership buy/sell advisory firm focused on providing a high level of client service for dealership sellers. The company has recently expanded its practice to include a private equity and family office advisory practice offering strategic investment advice to outside capital seeking to enter the auto retail industry. Led by a team with unique experience in auto retail, investment banking, commercial lending and private equity and who have represented transactions totaling over $2 billion, Kerrigan Advisors customizes each sale process to maximize the seller’s transaction proceeds. With the most comprehensive buyer database in the industry, Kerrigan Advisors has the industry context and expertise to match each seller with the right buyer.

Each quarter, Kerrigan Advisors publishes The Kerrigan Quarterly Blue Sky Report, which is the auto industry’s most comprehensive and authoritative quarterly report and analysis of dealership buy/sell activity and franchise values. Kerrigan Advisors’ Managing Director Erin Kerrigan, who authors the report, is a recognized industry expert on dealership valuation, real estate and buy/sells, and is a frequent speaker at leading auto retail events and conferences, including NADA, JD Power Automotive Roundtable, AICPA, NADC and Driving Sales’ President’s Club. She has also been a keynote speaker for events hosted by American Honda Motor Company, Audi of America, US Trust, Ohio Automobile Dealer Association, and SunTrust Bank and has led webinars for NADA and Automotive News. Her expertise is also featured in a monthly column for Dealer Magazine.

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