Erin Kerrigan on what’s happening in the buy-sell market today

October 27, 2021

What does the incredible year of buy/sell activity we’ve seen mean for the OEMs? On today’s show, we’re joined by Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors to walk us through what’s happening in the buy-sell market today.

They expected 2021 to be the year of the megadeal and Kerrigan thinks 2022 will continue that trend. The Larry H. Miller transaction with Asbury valued at $3.2 billion is a new record. She says what’s interesting about that deal is how strong the evaluation it is. It’s the sense of confidence that the industry will be able to continue at this level of profitability. Kerrigan finds that dealership groups with strong brands are valued at a higher level than those that don’t have either a regional presence with a brand or a dominant brand.

Related: Dealership M&A activity reaching feverish pace in third quarter

Kerrigan says the number one reason you are seeing so many megadeals is because the stock market is at an all-time high. The Kerrigan Index surpassed the 1,000 mark in March and kept going. Also, interest rates and the debt markets are minimal.

Over 50% of the industry is in some form of transition. The auto industry has defied the odds as it relates to family businesses being passed down. Kerrigan says businesses are trying to figure out if they want to transition into electrification and digital retailing. She says they’re seeing those family discussions come to a head where families are finally deciding, it may be the time to sell. Currently, dealerships have on average, a return on equity, 50% plus. The more they can grow revenue, the more valuable dealerships will be.

The inventory shortage doesn’t have any effect on current valuations. Kerrigan says if anything, it’s improving valuations because dealerships are making so much money.  She says the biggest challenge buyers have today is upon what earnings do I value a dealership? Most deals that are getting done, are the ones buyers averaging the current earnings and pre-pandemic earnings.

Kerrigan predicts they are going to be well over 350 transactions and even as high as 1,000 franchises trade hands in 2021. The buy/sell approval process is becoming a much bigger issue because it could possibly be a tax code change in 2022. She says they’re also seeing OEMs exercising their right of refusal in states, where they have that right to do so. Kerrigan says they do that because they want to pick who their dealers are. She says they’re keeping a very close watch on that.

We look forward to connecting with you.

Contact us to learn more about Kerrigan Advisors’ sell-side services.
All of our conversations are 100% confidential.