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Transactions surge as buy-sell boom rolls on

A fourth-quarter surge in the number of U.S. dealerships sold led to one dealer buy-sell adviser declaring 2020 a record year for transactions. And several experts expect the accelerated pace of stores changing hands will continue in 2021.

Prices are rising, and while that's a boon for sellers, potential buyers such as dealer Scott Biehl have to factor in higher costs as they consider whether to acquire more stores.

"Prices are going up, I think, every day," said Biehl, CEO of Triunity Automotive Group of Fresno, Calif., which acquired its second franchised dealership in January, a Jaguar-Land Rover store in West Hollywood, Calif., from Pendragon.

Biehl attributed increased buying activity and rising dealership prices in part to the resilience of the franchised dealership business model after the early months of the coronavirus pandemic. Dealership profitability soared as sales rebounded in the second half of 2020, creating what Biehl called "a great ride" for all dealers.

"With that push coming out of there, you have many dealers who are contemplating whether they're going to stay in and buy more stores, or if they're just going to get out completely," Biehl said.

Kerrigan Advisors, a sell-side firm in Irvine, Calif., counted a record 289 dealership transactions — deals that included a single store or multiple stores — for 2020 in its year-end Blue Sky Report. That pace was up 24 percent from 2019, and it included 103 deals that closed in the final three months of the year as profits soared. That was the largest number of deals Kerrigan Advisors has counted in any quarter it has tracked. The firm said its previous annual peak for deals was in 2015 when 241 transactions closed.

"A lot of the dealers that we were working with were aware that there would be a change in the political administration, so some were also pulling forward their decision to close, or focusing on closing by the end of the year, because they thought that perhaps their after-tax proceeds would decline with a new administration," Managing Director Erin Kerrigan told Automotive News.

Her firm represented dealers selling 22 dealerships in the fourth quarter.

Kerrigan and other buy-sell experts say the intensified pace of deals has continued in the first quarter of 2021.

Some advisers expect a possible record this year. Reasons for the growth, they said, include accelerated acquisition spending by public auto retailers, many private dealers choosing to take advantage of high prices and sell their stores and increasing consolidation of dealership owners.

Some dealers also are electing to sell at today's high prices rather than invest the money necessary to sell electric vehicles in the future or increase digital retailing capabilities, Kerrigan said.

The Haig Report, published by Haig Partners, a buy-sell firm in Fort Lauderdale, Fla., estimated that 104 dealerships were sold during the fourth quarter, up by a third from a year earlier.

Alan Haig, president of Haig Partners, said the total number of dealerships bought and sold in 2020 as tracked by his firm rose 15 percent to 344 stores. He doesn't call it a record though, noting that it was below the number of sold dealerships — 463 — tracked by Haig Partners for 2015. A large portion of that figure was attributable to Berkshire Hathaway Inc. acquiring Van Tuyl Group and its more than 80 dealerships.

Both Haig and Kerrigan use data from the Banks Report and their own industry analysis to compile the figures.

Kerrigan Advisors also cites Automotive News' deal reporting.

Haig estimates 39 of the 344 dealerships sold last year were purchased by public auto retailers, more than double the pace of 2019.

Spending among the publics accelerated in 2020. Both Kerrigan Advisors and Haig Partners estimate public groups spent nearly $2.5 billion on acquisitions, a record amount.

Lithia Motors Inc. bought about three dozen stores as it continued a lengthy buying spree. Lithia also is expected to acquire southeast Michigan's Suburban Collection, one of the nation's biggest privately owned dealership groups, in the coming weeks.

Other public groups also have shared their plans to buy franchised stores this year. And newcomer LMP Automotive Holdings Inc., a used-car retailer and vehicle subscription company that went public in December 2019, purchased its first six franchised dealerships in the first quarter.

Kerrigan Advisors found the average blue sky, or the intangible value of a dealership, including goodwill, jumped 21 percent at the end of last year to $7.7 million. Haig estimated that blue sky hit a record $8.1 million at the end of 2020, up 20 percent.

Kerrigan said she expects dealership values to continue to rise but not at the rate of the past year. Haig said some buyers are beginning to push back on the high prices, knowing dealership profitability is likely to return to normal levels.

Fresno dealer Biehl continues to look at stores for sale, calling the market "really hot."

"I probably had at least eight to 10 phone calls in the last 30 days with brokers calling me about stores that are for sale," Biehl said.

Nancy Phillips Associates, a dealership advisory firm in Exeter, N.H., handled 13 deals in 2020, with a much busier second half. President Nancy Phillips said she expects to handle at least that many transactions this year.

Her company has at least one closing a month scheduled through August, Phillips said, and it closed on two deals in the first quarter, with another slated to close this week. Seven more deals are pending.

In the Northeast, some dealers are opting to hold onto their stores for now, Phillips said, as they enjoy "extraordinary" profits. It's also a reason so many buyers are looking to acquire stores, she said.

"What we're short on is opportunities to sell," she said. "I definitely think it's going to change. I'm just not sure how quickly."

Haig said his firm has handled transactions involving eight dealerships in the first quarter, with two more deals slated to close in April. He and Kerrigan both said they see 2021 as possibly one for the record books.

"I believe that this will be perhaps the best year ever in terms of dealership buy-sells for values and numbers and may exceed that 2015 period where we had that exceptional [Berkshire Hathaway] transaction," Haig said. "And then we might go back to more normal levels in 2022."

Jack Walsworth contributed to this report.

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