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Rising Dealership Real Estate Prices and Private Sector Spending Offset Slight Decline in Blue Sky Values, according to The Blue Sky Report® released by Kerrigan Advisors

Kerrigan Advisors report for Q1 2017 reveals robust dealership buy/sell activity in 2017 with dealership valuations remaining high, even as auto sales slow; private buyers dominate buy/sell market as publics focus on non-US acquisitions

IRVINE, Calif.--(BUSINESS WIRE)--Buy/sell auto dealership activity remains robust for the first quarter of 2017, in spite of slowing auto sales and a slight dip in Blue Sky Values, all of which is offset by high dealership real estate prices, according to The Blue Sky Report®, a Kerrigan Quarterly, which today released its analysis for Q1 2017. Outpaced by the privates in acquisition activity, publics are directing their focus to non-US acquisitions. According to the report, macro-economic conditions, which offer opportunities for both optimism and pessimism, are contributing to a high level of activity in the buy/sell market, which is expected to continue throughout the year.

“2017’s buy/sell market is fueled by diverging viewpoints from conservative sellers and ambitious buyers – and is influenced by consistently high real estate valuations. Those confident in the long-term health of auto retail continue to seek acquisitions and investments,” said Erin Kerrigan, Managing Director of Kerrigan Advisors. “By contrast, the pessimists, and those who are generationally ready to go out on a high note, are increasingly choosing to exit the market, selling their dealerships at today’s high prices and avoiding a potential downturn. All of which contributes to a very active and robust buy/sell market.”

The report from Kerrigan Advisors is the auto industry's most comprehensive and authoritative quarterly report and analysis of dealership mergers and acquisition activity and franchise values. Laying out the high, average and low multiples for each franchise in the luxury and non-luxury segments for the quarter, the report offers a detailed view of public and private company dealership acquisition activity. Key findings from the Q1 2017 report include:

  • Dealership real estate prices and rents rose considerably on a quarter over quarter basis. Real estate, for most dealers, is their highest value asset, far exceeding franchise value.
  • Transaction activity increased slightly in the first quarter of 2017, exceeding 2015 and 2016’s high pace with 60 dealership buy/sell transactions completed in the quarter. *
  • 2017 is tracking towards 240 transactions for the year.
  • The number of multi-dealership transactions declined from 19 to 11.* Kerrigan Advisors expects the pace of multi-dealership transactions to increase considerably as the year progresses.
  • Public retailers’ acquisition spending decreased 12%. Since January, The Kerrigan Index™, which includes the seven public auto retailers, is down 9.6% to 492, underperforming the S&P 500.
  • The private sector acquired 93% of the franchises sold in the first quarter of 2017.
  • Domestics continued to grow their share of the buy/sell market - a trend driven by the growing market share of trucks and SUVs.
  • Import luxury franchises’ share of the buy/sell market decline by 45%

The report also identifies the following three market trends, which Kerrigan Advisors expects to affect the buy/sell market in 2017 and beyond.

  • Dealership profit plateau shifts buyer’s focus to current earnings
  • OEMs’ buy/sell approval processes differ significantly
  • Multiple arbitrage for dealership business lines continues

“Overall, we continue to expect 2017 to be a very active year for buy/sells with private buyers, new entrants and certain public buyers eager to put their capital to work. An increasing number of sellers are coming to market motivated by current prices and a strong desire to capitalize on today’s buy/sell activity,” concluded Kerrigan.

The Blue Sky Report®, a Kerrigan Quarterly, is published four times a year and 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 also releases a monthly index, The Kerrigan Auto Retail Index, composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan 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.

Erin Kerrigan is Founder and Managing Director of Kerrigan Advisors, and is a recognized industry expert on dealership valuation, real estate and buy/sells. A sought-after commentator on automotive retailing topics ranging from consumer auto buying trends to auto retail consolidation to private equity in auto retail, she has keynoted numerous automotive conferences and her analysis has appeared in publications such as Automotive News and the Wall Street Journal. For a video reel of Erin’s commentary on the market, click here.

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. Led by a team of veteran advisors who have represented transactions totaling over $2.5 billion in automotive, private equity and investment banking, 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.

In addition to the monthly Kerrigan Auto Retail Index, each quarter, Kerrigan Advisors publishes The Blue Sky Report®, a Kerrigan Quarterly, 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 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.

*The Banks Report/Kerrigan Advisors analysis

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