As the retail automotive sector has adjusted to new technologies, government policies, and consumer preferences, so too has the dealership buy-sell market. Although the pace of mergers and acquisitions activity remains intense, many retailers looking to grow their businesses or exit the industry altogether are no longer familiar with what buyers are looking for.
On this episode of Inside Automotive, host Jim Fitzpatrick is joined by Erin Kerrigan, founder and managing director at Kerrigan Advisors. Kerrigan Advisors has overseen some of the largest dealership buy-sell transactions of the last few years, making them one of the most sought-after advisories in the U.S. Under Kerrigan’s leadership, the company has also helped keep dealers up to date on the retail automotive M&A market as it has changed over the years. Now, she discusses the latest trends impacting store values and what dealers can expect to see in 2024.
Key Takeaways
1. Kerrigan notes that while the dealership buy-sell market began to slowly revive following the COVID pandemic, many retailers with the capital to acquire new storefronts started to see better deals in only the last few months, leading to a sudden jump in M&A activity.
2. Dealership earnings declined more than 20% over the last year, corresponding with a 5% drop in blue sky values. However, Kerrigan clarifies that blue sky values are not based on a dealer’s current earnings but rather on the earnings buyers believe they can achieve through an acquisition. This has allowed dealership price calculations to remain mostly insulated from changing market conditions such as rising or falling revenue.
3. Although buyers have looked to 2019 numbers to determine a storefront’s value for the last four years, Kerrigan warns that too much has changed in the dealership buy-sell market to make such calculations accurate. She notes that not only has the business transformed the way it interacts with customers, but that the products have changed as well, with electric vehicles becoming a necessity for future growth. These shifts have made pre-pandemic numbers less relevant as time has passed.
4. Kerrigan adds that the uptick in dealership buy-sell transactions is also due to business owners hoping to leave the industry before it changes further. Technological innovations promise to drastically reform the way parts of the retail automotive sector function, especially in regard to fixed operations and customer service. Some dealers are opting to leave the industry rather than learn a whole new business.
5. An increasing number of buyers see leasing as a more affordable way to “own” their new properties, as opposed to purchasing the real estate outright. Kerrigan explains that it is currently more economical to lease property since cap rates have risen more slowly than mortgage rates in the post-pandemic economy.
"Not only is 2019 somewhat irrelevant because the way the business is run is different, it's also somewhat irrelevant because we have EVs coming down the pike, that are totally different beasts." — Erin Kerrigan
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Kerrigan Advisors is the leading sell-side advisor and thought partner to auto dealers nationwide. Since its founding in 2014, the firm has led the industry with the sale of over 275 dealerships representing nearly $9 billion in client proceeds, including the third largest transaction in auto retail history – the sale of Jim Koons Automotive Companies to Asbury Automotive Group. The firm advises the industry’s leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, Kerrigan Advisors does not take listings, rather they develop a customized sales approach for each client to achieve their personal and financial goals. In addition to the firm’s sell-side advisory services, Kerrigan Advisors also provides a suite of consulting and investor services including growth strategy, market valuation assessments, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate due diligence.
Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report®, which includes Kerrigan Advisors’ signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments. To download a preview of the report, click here. The firm also releases monthly The Kerrigan Index™ composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail 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. To read the 2023 Kerrigan Dealer Survey, click here. To read the 2024 Kerrigan OEM Survey, click here. Kerrigan Advisors also is the co-author of NADA’s Guide to Buying and Selling a Dealership.
Contact us to learn more about Kerrigan Advisors’ sell-side services.
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