Is the surge in automotive M&A activity likely to continue in Q3 and Q4? – Ryan Kerrigan, Kerrigan Advisors

May 21, 2021

Over the past year, CBT News has reported on the incredible M&A activity in the retail automotive industry. Profitability, transactions, and market valuations for the public companies have been off the charts. On today’s show, we’re pleased to welcome back Ryan Kerrigan, managing director of Kerrigan Advisors, to discuss where the buy/sell market is headed for the rest of 2021.

Kerrigan begins this conversation by reminding us that April saw even more record-breaking automotive transactions, indicating that the market is still red hot. By tracking the stimulus spending coming out of the Federal Government, Kerrigan is confident that at least for the next six months, the M&A market will continue to be driven up by this spending. Additionally, in Q1 of this year, the six publicly traded new-car retailers reported over $800 million in net income after taxes. The industry has never seen numbers like this before and it is a testament to unprecedented economic conditions.

The conversation then shifts to the ongoing semiconductor shortage that is plaguing production quotas for several major manufacturers including Ford, Volkswagen, and GM to name a few. Kerrigan says that so far, the car dealers that he has spoken to are still selling cars at a feverish pace, however, it is likely that the chip shortage will catch up them at some point. Although, it is unclear when that might happen.

Circling back to M&A transactions, we’ve seen top publicly traded retailers like Lithia Motors and Asbury Automotive Group maintain aggressive acquisition plans. Where does this leave the smaller mom-and-pop dealers that maybe own two or three stores? Kerrigan says that the fact of the matter is that car dealers large and small are still seeing big increases in profitability. However, it is clear to Kerrigan Advisors that these groups will continue getting larger. 2020 and 2021 results will be outliers for the industry, and as the market returns to ‘normal,’ smaller dealers might find it more difficult to compete.

Wrapping up the discussion is talk of electric vehicles and direct sales from the OEMs. Auto brands like Cadillac and Volvo are positioning themselves to potentially sell vehicles directly to consumers. While some OEMs are gesturing in that direction, there are several potential caveats and uncertainties that will impact the effectiveness of that business model.

We look forward to connecting with you.

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