3 reasons why 2017 dealership buy/sell transactions topped 200 again
Kerrigan Advisors identified a trio of reasons why the dealership buy/sell market surpassed 200 transactions for the fourth consecutive year in 2017.
According to the firm’s latest Blue Sky Report released on Monday, the factors driving market activity included dealership consolidation, profitability, and the growing number of sellers coming to market. Kerrigan Advisors determined many dealers reassessed succession plans in light of disruptive projections about the changing nature of auto retail, and the belief that only large groups will be able to successfully navigate the industry’s evolution. Sellers also cited concern over reliance on OEM incentives to support dealership profitability, as well as manufacturer facility requirements.
“The economic benefits of consolidation continued to bring new buyers to market in 2017, and these new entrants included a growing number of international auto retailers,” said Erin Kerrigan, managing director of Kerrigan Advisors.
“These international buyers are primarily motivated by the tremendous consolidation opportunity in the US auto retail market, considered by many to be the most fragmented in the developed world,” Kerrigan continued. “High net worth individuals and family offices also sought investments in auto retail in 2017. All of these new entrants are highly attracted to the economies of scale available in US auto retail through meaningful consolidation.”
The Blue Sky Report, published by Kerrigan Advisors, includes analysis of all transaction activity in 2017 and lays out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments for the quarter.
Blue Sky Report data and analysis from the 2017 full-year report also includes:
• 202 dealership buy/sell transactions were completed in 2017, according to Kerrigan Advisors’ research and The Banks Report, compared to 221 transactions in 2016. After hitting a plateau in 2015 at 240 transactions, buy/sell activity declined slightly; Kerrigan Advisors expects an increase of activity in 2018 compared to 2017.
• Multi-dealership transactions declined slightly in 2017. The firm noted 51 multi-dealership transactions closed in 2017, resulting in an 11-percent decrease compared to the record year set in 2016. The size of some dealership groups is a motivating factor in the sale. Many are simply too large and too valuable to pass on to the next generation, particularly given predicted industry disruption.
• For 2017, domestics’ share of the buy/sell market remained steady at 43 percent; import luxury represented 20 percent of the buy/sell market in 2017, a disproportionate number considering that import luxury franchises represent just 9 percent of U.S. franchises.
• Public retailers’ acquisition spending increased 20 percent in 2017 compared to 2016, led by Lithia Motors.
• Private buyers, including new entrants to US auto retail, dominated the 2017 US dealership buy/sell market. Of the 343 franchises sold, 317 were acquired by private buyers.
Over 60 dealership groups now report over $1 billion in sales. That number is expected to grow considerably in the next five years, as the largest groups consolidate the industry.
The report also identified three key trends shaping this year buy/sell market, including:
• Tax reform benefits auto retail and results in increased buy/sell activity
• Dealers’ investment strategies shaped by auto retail’s expected evolution
• Dealership profit variability widens blue sky pricing ranges
“We expect 2018 to be a very active year for buy/sells with more private and public buyers eager to put their capital to work. These buyers believe growth is the answer to a changing auto retail environment and are eager to capitalize on economies of scale and scope,” added Ryan Kerrigan, managing director of Kerrigan Advisors. “We also expect more sellers coming to market in 2018, particularly given the drumbeat of change reverberating throughout the industry.”
Kerrigan Advisors is deeply involved in the buy/sell market having advised on the sale of 60 dealerships, including four of the Top 100 dealership groups (Sam Swope Auto Group, the Carbone Auto Group, the Tonkin Family of Dealerships, and Downtown LA Auto Group) since 2015. Kerrigan Advisors’ extensive experience representing the largest dealership groups in the country provides the firm with a unique perspective on the trends shaping the industry and today’s franchise values.
The Blue Sky Report, a Kerrigan Quarterly, is published four times a year and includes Kerrigan Advisors’ signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. To download The Blue Sky Report, go to this website.
Kerrigan Advisors also releases a monthly index, The Kerrigan Index, composed of the seven publicly traded auto retail companies with operations focused on the U.S. market. The Kerrigan Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail. To access The Kerrigan Index, go to this website.