Dealership Buy/Sell Market Marked Fifth Consecutive Year of 200+ Transactions in 2018 with Continued Growth Predicted for 2019

 

 

2018 transactions increased 6.9% year over year, including record number of multi-dealership transactions; in spite of auto sales downturn, 2019 acquisition market will be robust, with real estate valuations high and private investors seeing key value in Fixed Ops profit centers and improved retail efficiencies, according to The Blue Sky Report® released by Kerrigan Advisors

 

Irvine, CA – March 19, 2019 – The automobile dealership buy/sell market recorded another year of tremendous activity in 2018, representing a 6.9% growth over 2017, and the fifth consecutive year of over 200 buy/sells, according to the just-released The Blue Sky Report’s® “Year in Review” by Kerrigan Advisors. Two hundred sixteen transactions closed in 2018, including a record number of multi-dealership transactions.  And, according to the report, this five-year streak shows no signs of abating: in spite of an anticipated slump in auto sales and rising interest rates, Kerrigan Advisors predicts that 2019 will be another robust year for buy/sells and valuations.

 

“The strength of the dealership buy/sell market over the last five years is a testament to the health of the US economy, the financial markets, and most importantly the auto retail industry.  We believe the number of buyers, particularly those backed by professionally managed capital, will increase in 2019,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors.   “Despite rising interest rates and a decline in new vehicle sales, the average auto dealership remains highly profitable and valuable, continuing to appeal to private dealers who comprised the majority of buyers in 2019."

 

In addition to a strong economy and the ongoing consolidation and innovation opportunities in auto retail, among the key factors Kerrigan Advisors cites for a strong buy/sell market in 2019 are a rise in the number of private investors seeking to put capital into auto retail (year-to-date, the pace of new investors seeking investments in auto retail has risen 59% as compared to 2018); increased dealership gross profit driven by fixed operations (service & parts), as well as dealerships’ historically demonstrated ability to adjust their business model to create new profit opportunities and reduce variable expenses.

 

“Buyers are looking for higher quality franchises which are more competitive as new vehicle sales decline,” continued Kerrigan.  “These franchises tend to have more fixed operations revenue, which commands a gross profit margin nearly ten times higher than new vehicles and are benefitting from the surge of vehicles entering the “sweet spot” of customer pay post-warranty, more than making up for margin losses from a contracting vehicle market.”

 

Kerrigan Advisors noted that while overall Blue Sky multiple averages are lower, due to a decline in lower demand franchises, valuations remain strong, although more stores are trading at average, rather than high multiples. Additionally, valuations are being positively influenced by high real estate valuations which are at peak levels and represented the largest portion of a dealership’s value in 2018:  Kerrigan Advisors estimates the average dealership’s real estate value at $11.3 million, up 4.9% from 2017. This shift in dealership transaction values from blue sky to real estate has reduced the equity requirements of the average transaction which, Kerrigan Advisors believes, is one of the reasons buy/sell activity remains so strong.

 

Domestics continued to show strength in the 2018 buy/sell market, according to the report, exceeding 50% for the first time in the last five years. On the other hand, import luxury franchises’ market share continued to decline, a trend the report says will continue in 2019 as their high multiples will be more difficult to achieve for some buyers. Also contributing is the sensitivity import luxury franchises have to rising interest rates because their high valuations typically require more leverage.  But, although the larger import segment will also see a decline in 2019, Kerrigan Advisors expects the top import non-luxury franchises, namely Toyota, Honda and Subaru, to grow their buy/sell market share in 2019.

 

“A key trend for 2019 is that the business model of the franchise will determine buyer demand:  as industry sales contract, buyers become more discerning, focusing on high-performing franchises that have attractive, long term investment characteristics and that tend to outperform the industry when sales decline,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors.   “Meanwhile, weaker franchises with challenging dealer business models will see lower buyer demand because today’s buyers are not attracted to franchises with poor dealer relations, highly variable incentive programs, less supportive captive finance companies, low sales per dealership and weak fixed operations.”

 

The report also identified the following four market trends, which it predicts will meaningfully impact the buy/sell market in 2019 and beyond.

 

➢ Sellers avoid image upgrades to capitalize on record real estate values

➢ Rising interest rates impact blue sky values

➢ Franchise business models determine buyer demand

➢ Transaction activity increasingly varies by market

 

The Blue Sky Report®, published by Kerrigan Advisors, is the auto industry's most comprehensive and authoritative quarterly report on dealership M&A activity, as well as franchise values. It includes analysis of all transaction activity for the year, and lays out the high, average and low blue sky multiples for each franchise in luxury and non-luxury segments.

Key Highlights from the 2018 Full Year Blue Sky Report® include:

  • 216 transactions closed, versus 202 in 2017, resulting in a 6.9% increase over 201
  • Year to date, the pace of new investors seeking investments in auto retail has risen 59% as compared to 2018.
  • The number of multi-dealership transactions reached a record 65 for the full year of 2018, a notable 25% increase over 2017’s level.
  • Domestics’ share of the buy/sell market rose again in 2018, exceeding 50% for the first time in the last five years.
  • Public retailers’ acquisition spending declined in 2018 by 6% as compared to 2017.
  • Private buyers continue to lead industry consolidation, acquiring 93% of the franchises sold in 2018, about the same level as 2017.
  • Dealership real estate represented the largest portion of a dealership’s value in 2018, exceeding blue sky value by 84.2%.
  • Public companies are undervalued relative to private dealerships. Public blue sky multiples now average just 1x, only slightly above Kerrigan Advisors’ average blue sky multiples for private dealerships, despite the publics’ liquidity premium.

 

For more details and to preview the report, click here.

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. The company 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.

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, CNBC.com, The Economist and the Wall Street Journal. For a recent video of Erin’s commentary on the market, click here.

Ryan Kerrigan is Managing Director of Kerrigan Advisors and an expert on US auto retail buy-sell and capital-raising transaction work.  Prior, Ryan served as Managing Director at Serent Capital, a $250mm private equity fund investing in middle market companies and served as General Manager of the family’s auto dealership. Mr. Kerrigan began his career as a management consultant at McKinsey & Company, where he advised Fortune 500 companies on growth strategies, organizational issues, pricing and business valuation.

About Kerrigan Advisors

Kerrigan Advisors is the leading dealership buy/sell advisory firm focused exclusively on providing a high level of client service to dealership sellers nationwide. Led by a team of veteran industry experts, Kerrigan Advisors customizes each sale process to maximize the seller’s transaction proceeds. The firm has sold 79 dealerships in the last five years, including five of the Top 100 Dealership Groups in the U.S. With the most comprehensive buyer database in the industry, Kerrigan Advisors has the industry context and expertise to match every seller with the right buyer. In addition to Kerrigan Advisors’ buy/sell and capital-raising transaction work, the firm also provides a suite of consulting services including accounting preparation for sale, litigation support, open point applications and transactional due diligence.

In addition to the monthly Kerrigan Auto Retail Index™, each quarter, Kerrigan Advisors publishes The Blue Sky Report®, which is the auto industry's most comprehensive and authoritative quarterly report and analysis of dealership buy/sell activity and franchise values, received by over 9,000 industry recipients in 35 countries.  Kerrigan Advisors’ Founder & Managing Director, Erin Kerrigan, is a recognized 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, Automotive News’ Canadian World Congress, AICPA, and NADC. She has also been quoted numerous times by the Wall Street Journal and interviewed by The Economist and has been a keynote speaker for events hosted by American Honda Motor Company, Audi of America, US Trust, Ohio Automobile Dealer Association, and SunTrust Bank. Kerrigan Advisors’ Managing Director Ryan Kerrigan is also a sought-after industry expert. He is featured in a monthly column for Dealer Magazine and has written Op-Eds for Automotive News.

Kerrigan Advisors Media Contact:
Melanie Webber, 424.603.4340 / melanie@mwebbcom.com, mWEBB Communications

 

Views: 5

Comment

You need to be a member of DealerELITE.net to add comments!

Join DealerELITE.net

Latest Activity

Dave Anderson posted a blog post

Leading with Level One Accountability

There are four levels of accountability in any organization, and within the departments of that…See More
1 hour ago
Scot Eisenfelder posted a blog post
2 hours ago
Jim Flint posted a blog post
3 hours ago
Cynthia Madison posted a blog post

Important considerations before buying your first car

Pollution became a matter of great importance in the past few years, considering the impact it has…See More
3 hours ago
Bill Wittenmyer posted a video

Freebie Friday: How to Combat Flat Vehicle Sales

Bill Wittenmyer explains why dealerships shouldn't be afraid of slowing vehicles sales and the actions they can take to remedy that in this episode of Freebi...
3 hours ago
Andy Church posted a video

Profit By Action Quick Tip: Prospecting

Sales people are not order takers. It is your responsibility to understand that your sales process starts with PROSPECTING, not the meet and greet. This Prof...
3 hours ago
Yogesh Sashi posted blog posts
9 hours ago
Jeff Cowan posted a blog post

Write Service Podcast: Episode 64- Holidays, Events, and Excuses

This week, Jeff covers three points about this maximizing this upcoming season of holidays and…See More
yesterday
Jeff Giere posted blog posts
yesterday
Brett Sutherlin posted a video
yesterday
Stella Lemon posted a blog post

Bike Information with Bike Owner Details

Check bike information and registration details with Owner Details, RTO, Insurance, Make model,…See More
yesterday
John Sternal posted a blog post

Swapalease.com Announces Its Top Vehicles for The Summer

Users Voted on What They Believe are the Top Vehicles for the Summer Months Based on…See More
yesterday
Damian Boudreaux posted a blog post
Wednesday
Michia Rohrssen posted a blog post
Wednesday
Timmy D. James posted a blog post
Wednesday
Erik S. Nachbahr posted a video

Protect Your Dealership from Phishing

In this video blog, Erik Nachbahr shares why it is important to protect your dealership from phishing attacks.
Wednesday
Black Book posted a blog post

Broad Strength in the Market Except for Luxury Vehicles

Welcome to this week's edition of Black Book Market Insights, with in-depth analysis of used car…See More
Tuesday
Walter McNulty posted a video

April 15, 2019

Lead Generation
Tuesday
Dave Anderson posted a blog post

Consistency is the Key

In this episode of The Game Changer Life, Dave welcomes Ethan Happ - Wisconsin Men's Basketball…See More
Tuesday
Dan Beres posted a blog post
Tuesday

Get Newsletter

© 2019   Created by DealerELITE.   Powered by

Badges  |  Report an Issue  |  Terms of Service