This is a developing story and will continue to be updated.
KAR Global has signed a definitive agreement to sell all of its ADESA physical auction business in the U.S. to Carvana for $2.2 billion.
The all-cash deal would include all auction sales, operations and staff at 56 ADESA U.S. vehicle logistics centers in the U.S.
Carvana would also have exclusive use of the ADESA.com marketplace in U.S.
Carvana said it has committed financing of up to $3.275 billion from JPMorgan Chase Bank N.A. and Citi.
It plans to fund the purchase price and another $1 billion in improvements to the auction locations through that commited debt financing.
The companies said approximately 4,500 current ADESA and KAR employees would move over to Carvana once the deal closes. That includes all field personnel supporting ADESA vehicle logistics centers in the U.S., plus corporate employees and select senior and executive leaders who primarily focus on the U.S. ADESA physical auction business.
The latter includes ADESA's U.S. president John Hammer, who will move over to Carvana once the deal closes. The ADESA brand will be retained by Carvana.
The deal is expected to close in the second quarter.
“KAR has always been a leader in the digital transformation of remarketing, and this transaction firmly positions us as the premier digital marketplace provider for wholesale used vehicles,” KAR chief executive Peter Kelly said in a news release. “While off-premise sales have increased over the past decade and represent over 50% of our vehicle sales today, we believe we are still in the early stages of this industry evolution, and the trends are rapidly gaining momentum. Digital marketplaces provide low cost, highly efficient venues for our sellers and buyers to transact, and our leading digital brands, platforms and technology position us well to grow as digital penetration increases.
“This transaction will allow us to focus our investments and energy on those higher growth, higher margin digital marketplaces and on delivering the most strategic solutions to our customers. By simplifying our business, we are better positioned to lead and win in the fastest growing segments of this industry.”
As part of the deal, KAR would be a technology partner to Carvana. It would support the ADESA.com digital markeplace as well as the Simulcast and Simulast+ technology behind in-lane virtual sales run by ADESA and independent physical auctions.
KAR will continue to operate its OPENLANE platform, as well as its digital dealer-to-dealer businesses. The latter includes BacklotCars and CARWAVE in the U.S., as well as TradeRev in Canada.
The ADESA Canada, ADESA UK and ADESA Europe businesses, along with KAR's affiliated inspections, transportation and other services brands like AFC, will remain part of KAR.
“This transaction will enable a leaner, more nimble operating model and faster long-term growth rate at KAR,” said Kelly. “We believe the transaction will reduce our 2022 adjusted EBITDA by approximately $100 million on an annual basis — net of the contribution from the commercial agreement entered into with Carvana as part of this transaction. However, we will reduce our headcount by approximately 50% while also paying down the majority of our balance sheet debt.
“We expect these savings, when combined with our investments and our focus on higher growth platforms, will deliver higher revenue and EBITDA growth rates, as well as higher gross profit and EBITDA margins.”
In a separate news release, Carvana said that when ADESA's U.S. auction sites “are fully build out within Carvana's production network,” 78% of the U.S. population would live within 100 miles of a Carvana inspection and reconditioning center.
Bringing ADESA's existing and potential reconditioning capabilities into the fold allows for roughly an additional 2 million units to Carvana's annual production capacity.
“We are thrilled to welcome ADESA U.S. to the Carvana family. Together with Carvana’s existing operations, ADESA U.S.’s nationwide infrastructure network and robust, highly profitable business will accelerate Carvana’s progress toward becoming the largest and most profitable automotive retailer,” Carvana founder and CEO Ernie Garcia said in the release.
“Over time, we will leverage our combined infrastructure and complementary expertise to deliver even better selection, better value, and faster delivery times to our retail customers while simultaneously raising the bar and providing more access and better experiences to our wholesale customers,” Garcia said.
Garcia added: “ADESA earned its place as a respected brand in our industry because of its dedicated team and robust operations.
"We have long admired ADESA, having come to appreciate their approach as a customer for many years. We look forward to joining forces and continuing on the path of delivering the best customer offering for both retail and wholesale customers.”
Hammer, the ADESA president, added: “ADESA and Carvana are committed to ensuring a smooth, seamless transition for the ADESA U.S. physical auction customers.
“We look forward to bringing our innovative teams together and combining the power of our physical auction and retail capabilities to better serve buyers, sellers and consumers across the automotive industry,” Hammer said.
Auto Remarketing will have more details and continue to update this story.
Another busy week of dealership activities unfolded with an acquisition involving seven franchises, a dealer association rolling out its annual effort to help college students as well as another large dealer group raising $100,000 for two dozen charities.
Let’s begin with the latest M&A move involving Haig Partners, which was the exclusive sell-side advisor to Cincinnati-based Superior Automotive Group on the sale of its seven Ohio dealerships to Jeff Wyler Automotive Family.
According to a news release from Haig, the transaction includes Superior Acura, Superior Honda, Superior Kia, Superior Hyundai North, and Superior Hyundai South in greater Cincinnati and Superior Acura of Dayton and Superior Hyundai of Beavercreek in greater Dayton.
Haig recapped that Superior Automotive Group was established in 1924 and is one of Ohio’s oldest dealership groups. With roots based in Cincinnati, the business expanded over the years to serve all of Ohio and northern Kentucky.
“I am happy the Wylers are buying the stores as I know they will continue to build on the legacy our family has created,” Superior Automotive Group president John Betagole said in the news release.
Haig mentioned the Jeff Wyler Automotive Family now owns 23 dealerships located in Ohio, Kentucky and Indiana.
“We are excited to bring these seven Superior dealerships into the Jeff Wyler Automotive Family. We know one direction — forward — as we continue to grow and lead the market not only in Cincinnati, but nationwide,” David Wyler of the Jeff Wyler Automotive Family said.
“Our focus is to not only grow but to also become more consumer facing every year, and the addition of these dealerships means an even larger selection of inventory for our shoppers locally and across the U.S,” Wyler added.
The team at Haig Partners has been involved in the purchase or sale of 54 dealerships in the Midwest Region.
“Some dealers who may not have previously considered selling are reevaluating their options. Dealership profits are soaring, and the demand for stores continues to hit record levels,” said Kevin Nill, a partner with Haig Partners. “It was an honor to work with the Betagole family to help them navigate the decision to sell the family business. We appreciate their trust in the team at Haig Partners to help them maximize the value of their lives’ work.”
CDK Global, NAMAD launches sixth annual Fueling Careers Scholarship
Future automotive leaders again can get some assistance through a program orchestrated by CDK Global and the National Association of Minority Automobile Dealers (NAMAD),
This week, CDK and NAMAD opened the application process for the sixth annual Fueling Careers Scholarship Program. According to a news release the program supports ethnic minority high school students of dealership employees who demonstrate financial need in their pursuit of a college education.
The program is funded by CDK and will award up to five $10,000 scholarships per year to high school seniors entering an accredited college or university.
Since 2017, CDK and NAMAD have awarded $250,000 in scholarships.
Kathy Gilbert is senior director of minority dealers and women retail at CDK Global.
“We are passionate about continuing to support ambitious young men and women who are committed to pursuing educational goals that prepare them for meaningful, productive and fulfilling careers,” said Gilbert, who also was among the Women in Retail honorees highlighted during Used Car Week 2019.
“NAMAD has been an ideal partner for making this program a reality for six consecutive years, as we continue working toward enhancing the lives of these students and their families and empowering them to make significant contributions to society,” Gilbert continued in the news release
Candidates can submit applications through May 6 on the Fueling Careers Scholarship Program website. Recipients will be announced at the NAMAD Annual Meeting.
The scholarship application and award process are managed by International Scholarship and Tuition Services, Inc. (ISTS).
The news release indicated dealership employees of a NAMAD member with high school students will need to complete an online application and satisfy all eligibility requirements.
NAMAD president Damon Lester said, “We have a unique opportunity and important responsibility to help shape the future talent for the automotive industry.
“Supporting our minority dealer community has been a critical platform for both CDK and NAMAD. Through this scholarship program, we are paving the way for remarkable students within our minority dealer body to succeed,” Lester added.
The news release also highlighted the impact the program can make. Sebastian Watler, a mechanical engineering major at Lamar University, was a 2021 Fueling Careers Scholarship winner.
“I am incredibly grateful to CDK and NAMAD for this blessing,” Watler said. “Ever since I was young, I have always been interested in the idea of building something of my own creation and imagination. Thus, I took a major interest in science and technology.
“The world needs better advances in technology, and the automobile industry is one of the areas I could help. No matter where you are in the world, cars are around you,” Watler went on to say.
Philanthropy at Park Place Dealerships
The American International Automobile Dealers Association used its weekly philanthropy to point out the achievements by Park Place Dealerships, which became part of Asbury Automotive Group in August 2020.
According to a blog post on the group’s website, Park Place Dealerships gave $100,000 to 24 local non-profits through the SEASON OF GIVING campaign, which celebrated its 35th year in north Texas.
Park Place said selected the organizations for its SEASON OF GIVING campaign because of their commitment to serving the Dallas/Fort Worth community.
The group highlighted that a committee comprised of Park Place members from different dealerships across north Texas selected the non-profits out of more than 350 applications received.
Under Park Place Cares, the company’s philanthropic arm, the company donated $100,000 to 24 charities that met the following criteria:
—A 501(c)(3) non-profit organization
—Supports one of Park Place Cares’ Pillars of Giving, which include education, medical, advocacy, or the arts
—Serves at least one of the following counties: Dallas, Tarrant, Collin, Denton, Ellis, Rockwall, Kaufman, Hunt, or Johnson
—The charity cannot have received donations or in-kind support from Park Place in 2021
“Selecting these non-profits was very challenging,” said Tony Carimi, managing director of Park Place Dealerships. “There are so many worthy non-profits doing admirable work in the areas we would like to impact. Our team had the difficult task of narrowing down the charities from 350 to 24 across North Texas to make the greatest impact during our Season of Giving.”
The charities receiving a grant included:
Denton Co. Friends of the Family
Journey to Dream Foundation
Canine Companions
For Oak Cliff
Rainbow Room of Rockwall
A Wish with Wings
Don’t Forget to Feed Me Pet Food Bank
Ally’s Wish
Tara Sawyer Foundation
LGBTQ Saves
Defenders of Freedom
Dwell with Dignity
Laughter League
Cara Mîa Theatre
Texas Winds Musical Outreach
Sixty & Better
Camp Summit
The Jordan Elizabeth Harris Foundation
Bettie Gonzalez Foundation of Hope
Computers for the Blind
Heavenly Hooves Therapeutic & Recreational Riding Center
Heroes for Children
Project4031
“We are humbled to have received such an incredible response to the SEASON OF GIVING campaign with the opportunity to reach so many people across our community through these outstanding non-profits,” said Anam Ali Hashambhai, marketing director for Park Place Dealerships. “Over the past 35 years, we’ve donated millions of dollars and countless volunteer hours to support great causes across north Texas, but this is the first time we have implemented this type of giveaway.
“The SEASON OF GIVING campaign expands our benevolence giving this holiday season to organizations we haven’t worked with previously. We look forward to developing these new relationships in the year to come,” Ali Hashambhai went on to say.
Alex Vetter and the team at CARS believe that “technology’s the great equalizer.”
And that’s at the core of their goals for the planned acquisition of the Accu-Trade group, as Cars.com looks to “give technology back to the local dealership” through more efficient ways to source used-car inventory.
In this case, those avenues would be dealers sourcing vehicles from private-party sellers and through dealer-to-dealer trades, which the integration of Accu-Trade into the CARS properties can help facilitate …
Read more
The dealership acquisition and philanthropic activities continued on Tuesday, as separate news releases highlighted the newest developments in western Michigan and southern California.
Let’s begin first with the M&A moves involving Kerrigan Advisors, which represented Hitchcock Automotive in its sale of three high-volume Toyota dealerships in southern California.
According to a news release, Kerrigan helped to facilitate the sale of Northridge Toyota and Toyota of Santa Barbara to Van Tuyl Companies, as well as Puente Hills Toyota to Kaminsky Automotive.
Kerrigan highlighted that Hitchcock Automotive has a long and distinguished legacy in southern California. The group was founded in 1971 by industry legend Frederick “Fritz” Hitchcock, who passed away last year. Hitchcock began selling Toyotas in 1976, building his Toyota dealerships to some of the top volume stores in their markets.
The news release also mentioned Hitchcock was a very active advocate in the industry for free trade and lower tariffs. His long record of service included roles as chairman of the board of directors American International Automobile Dealers Association — which named its Grassroots Leadership Award after him — a co-founder of the Automotive Free International Trade Political Action Committee, president of the California New Car Dealers Association and chairman of the Toyota and Mazda national dealer councils, among many others.
“These dealerships, in so many ways, represent my dad’s extraordinary legacy,” said Ted Hitchcock, son of Fritz Hitchcock and partner of Hitchcock Automotive.
“It is a bittersweet moment to announce the sale of the Hitchcock dealerships, as we have been a family business for decades. I am thankful to Kerrigan Advisors for running such a seamless sale process for our family,” Ted Hitchcock added.
Kerrigan pointed out that Northridge Toyota and Toyota of Santa Barbara are the highest volume dealerships in their submarkets and represent some of Larry Van Tuyl’s first acquisitions since selling Van Tuyl Group to Berkshire Hathaway in 2014.
“It was very important to the family that we found the right new owners with the vision to continue our dealerships’ record of excellence, success and service in their communities,” Hitchcock Automotive president Howard Hakes said in the news release.
Kerrigan went on to note that Puente Hills Toyota has been the No. 1 volume new-car dealership in Puente Hills, Calif., for more than 30 consecutive years. The dealership will join Honda and Toyota of El Cajon as part of Kaminsky Automotive, which is owned by brothers Greg and Gary Kaminsky.
“Toyota is a powerful brand nationwide and particularly in greater Los Angeles, which is one of the largest car markets in the country. In addition to Toyota’s strong market share, Toyota’s franchises are sought after due to their consistently high profitability and Toyota’s partnership business model with its dealers,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors, which has advised on the sale of 17 Toyota dealerships in the last seven years.
The latest moves mark the 149th dealership sale led by the Kerrigan Advisors team since 2015.
“It was a sincere honor to represent the Hitchcock family in this important transaction,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “Fritz Hitchcock was a larger-than-life presence in auto retail, and he will be long remembered for his commitment to our industry. We wish the Hitchcock family all the best as they transition these highly attractive dealerships to Van Tuyl Companies and Kaminsky Automotive.”
Marathon in the Midwest
Meanwhile, the Zeigler Automotive Group — which has 78 franchises across 35 locations in Wisconsin, Illinois, Indiana and Michigan — is looking forward to rekindling a rebranded event in April, according to a news release.
The Zeigler Kalamazoo Marathon, formerly known as the Kalamazoo Marathon and Borgess Run for the Health of It, will return for its 41st installment, after a two-year in-person hiatus due to COVID — going virtual in 2020 and canceled 2021.
Registration is now open online at ZeiglerKalamazooMarathon.com for the three-day event, kicking off April 22 with a Kid’s Day and culminating in the event’s main races on April 24.
“Zeigler is proud to bring this local tradition back to life. This race has long been held and revered in Kalamazoo as an institution for runners and families alike. We stand committed to helping events like this one evolve into something everyone can enjoy,” said Aaron Zeigler, president and owner of Zeigler Auto Group, the event’s title sponsor.
The news release also mentioned the Zeigler Kalamazoo Marathon’s new slogan, “Driving A Healthy Community,” which honors the legacy of the local race’s history while signaling a new beginning in the community.
Tom Staszak, who is senior managing director of mergers & acquisitions at Generational Equity, joins the Auto Remarketing Podcast to talk about the rise in dealership buy-sell activity.
In this episode, we discuss the drivers of that M&A growth, why it makes sense for some stores to exit, and moves in the auto industry at large.
Plus, we discuss outside interests pursuing acquisitions in retail automotive.
To listen to the conversation, click on the link available below, or visit the Auto Remarketing Podcast page.
Download and subscribe to the Auto Remarketing Podcast on iTunes or on Google Play.
Separate announcements from DCG Acquisitions, part of the Dave Cantin Group (DCG), and Haig Partners detailed how a dealer group in the Northwest as well as another one in the Southeast each became bigger this week.
DCG represented both parties in the larger of the two newest developments, as the Gee Automotive Companies — among the top three largest family owned and operated automotive groups in the Pacific Northwest — acquired Dick’s Auto Group, which is one of the oldest family-owned and operated automotive groups in Portland. Ore.
According to a news release, the transaction consisted of Dick’s Hillsboro Chevrolet, Dick’s Country CDJR and Dick’s Mackenzie Ford. Under the new ownership they will be known as Tonkin Hillsboro Chevrolet, Tonkin CDJR and Tonkin Hillsboro Ford.
“This smart, incredible opportunity quickly seized by Gee Automotive Companies to acquire Dick’s Automotive Group is a perfect example of how the organization is able to continually grow in specific markets while remaining consistent with their investment strategy,”, DCG founder and chief executive officer Dave Cantin said in a news release.
Gee Automotive Companies has more than 40 OEM franchises in 33 locations.
“Our relationship with DCG Acquisitions has truly exceeded our expectations for a mergers and acquisitions firm,” Gee Automotive Companies CEO Ryan Gee said in the news release. “This is our first closed deal with DCG Acquisitions but I am confident that there will be many more over years to come. We look forward to working with George Pero and his team at DCG on future deals as we continue to grow and expand.”
Dick’s Auto Group co-owner Shannon Inukai-Cuffee added that the move with Gee is the second closed deal with DCG Acquisitions in less than 12 months
“Fast forward to today and here we are again with yet another successful transaction because of our relationship with DCG,” Inukai-Cuffee said “This time, we asked DCG to find us a suitable buyer and that is exactly what Joe Beaver did.
“In addition, George Pero spent countless hours providing our family guidance and counsel to a level I never dreamed of. I always felt DCG was with us every step of the way,” Inukai-Cuffee went on to say.
New owner for Tennessee Toyota store
Switching from the Northwest to the Southeast, Haig Partners was the exclusive sell-side advisor to the Mitchell Family Office on the sale of Toyota of Bristol in Tennessee to Tal Vickers of the Springhill Automotive Group of Mobile, Ala.
“I am excited for the opportunity to expand our dealership group with this acquisition. As a long-time Toyota dealer, I look forward to being a part of the Bristol community and representing the Toyota brand,” Vickers said in a news release distributed by Haig Partners.
JR Reihl was operating partner of Toyota of Bristol.
“I’ve had the honor of working with the team at Toyota of Bristol over the past several years and am proud of the brand and reputation we have built. I wish the team at Tal Vickers much success and continued growth,” Reihl said in the news release
Toyota of Bristol is the 29th Toyota dealership the Haig Partners team has bought or sold since 1996.
“Due to the extremely attractive market conditions for dealers and a growing need to get bigger to compete in automotive retail, we were exploring the strategic decision of selling our Toyota of Bristol location and returning our complete focus to the family’s core healthcare business opportunities,” Mark Mitchell said
“A trusted advisor in automotive retail recommended we speak to John Davis and the team at Haig Partners. John provided excellent advice and secured the right buyer who will continue to serve the Bristol market for Toyota,” Mitchell continued.
Davis is managing director with Haig Partners
“I am grateful to the Mitchell Family for their trust in Haig Partners to help them accomplish their strategic goal of selling at a time when they can maximize the return on their investment,” Davis said. “Dealers are experiencing record-breaking profits, which I believe will remain strong into 2022 and beyond.
“Many dealers today are increasingly convinced that you need to have significant scale to compete over the long-term. This growing ‘get big or get out’ belief is causing some dealers to sell while values are high. At the same time, other dealers are opting to get bigger so they can increase their scale and enjoy attractive returns on investment,” Davis went on to say.
Logan Parker and Robert Bass of Bass Sox Mercer provided legal representation for the seller. David Porteous of Evans Petree P.C. provided legal representation for the buyer.
An acquisition announcement in the fleet space literally on a global scale came to light on Thursday.
ALD Automotive said it signed of a memorandum of understanding to acquire 100% of LeasePlan from a consortium led by TDR Capital.
According to a news release, the proposed acquisition of LeasePlan is for a total consideration of 4.9 billion Euros and would be made through a combination of cash and shares.
The companies said they expect the deal to be completed by the end of the year.
LeasePlan is one of the leading fleet management and mobility companies in the world by fleet size with 1.8 million vehicles in its portfolio, prompting leadership to say that “with a global and extensive offering,” LeasePlan is “the perfect fit for ALD to shape the industry’s transformation.”
The proposed combination of ALD and LeasePlan into NewALD is expected to be “highly synergetic” and create an opportunity to cross-leverage the two companies’ complementary capabilities.
As a leading global player in mobility worldwide, NewALD explained that it would be able to benefit from a fast-growing market driven by strong underlying trends, including the:
— Shift from ownership to usership on all fronts: B2B, B2C and even B2E4
— Data-driven digital transformation of the mobility industry
— Transition toward zero-emission and sustainable mobility
Executives added that this “transformative” deal would position NewALD for long term fleet growth of at least 6% post integration. NewALD said it would target an improvement in cost to income ratio to 45% by 2025.
“Today marks the beginning of a new chapter in our history as a first step towards creating NewALD,” said ALD chief executive officer Tim Albertsen, who also will lead the combined company. “In the context of today’s transformation of the automotive and mobility sectors, which is proceeding at an unprecedented pace, this proposed transaction is instrumental in the creation of a leading global player in mobility.
“By combining the multiple strengths of ALD and LeasePlan, gaining size, joining forces in digital and creating a leading provider of sustainable mobility solutions, we would transform our industry and be best positioned to deliver even better solutions and value propositions to our enlarged client base,” Albertsen continued. “This transaction would create multiple opportunities to the joint management teams and talents of both companies, across geographies, underpin our focus on sustainability with a clear path to zero emissions mobility and not least deliver strong shareholder returns over the cycles.
“We are all very excited about the prospect of being part of this new venture,” he added.
The proposed transaction has received the support of LeasePlan’s board of directors, as well as its supervisory board
“The combined business would be instrumental in moving the automotive industry from ownership to subscription models and zero-emission mobility,” LeasePlan chief executive officer Tex Gunning. “By joining forces with ALD, we combine the best talents in the industry with the investment power needed to meet the next generation mobility needs of our customers.
“From day one, NewALD would be operating one of the largest fleets of electric vehicles and will continue to set the standard for ESG in the mobility industry. I am very proud of all LeasePlanners for bringing our business to where it is today. We are looking forward to working with the excellent team at ALD and taking our combined business into the exciting future of mobility,” Gunning went on to say.
XLerate Group said last week that it has completed its purchase of America’s Auto Auction, wrapping up a deal reported first by Auto Remarketing on Dec. 22.
The companies did not disclose the transaction’s terms.
The combined company includes 39 auction locations in 19 states, digital and mobile auction businesses and related financing operations.
XLerate has fixed-site and mobile sales in California, Florida, Georgia, Illinois, Indiana, Louisiana, Michigan, New Mexico, Pennsylvania, South Carolina, Texas and Wisconsin.
Bringing America's into the fold adds Alabama, Kentucky, Massachusetts, Missouri, Ohio, Oklahoma and Virginia to the mix, along with additional locations in most of the states where XLerate operates.
XLerate chief executive officer Cam Hitchcock and the company’s current executive team will operate the company, including executive vice president and chief revenue officer Chuck Tapp and EVP/chief financial officer Charles Kunkel.
XLerate, which is headquartered in Carmel, Ind., is owned by affiliates of Brightstar Capital Partners.
Brightstar will be the controlling shareholder of the combined entity.
“This expansion of our business and capabilities comes at a very exciting time for the industry,” Hitchcock, the XLerate CEO, said in a news release.
“We’re looking forward to growing this combined company in partnership with our new colleagues from AAA,” he said. “Our cooperative efforts will allow us to truly become a leading player within the vehicle remarketing sector — in terms of offering our customers the best physical and digital auction services, including financing solutions tailored to their needs.”
Brightstar partner Gary Hokkanen added: “We are very pleased to play a part in bringing together AAA and XLerate. Combining these respected companies creates an impactful opportunity to provide best-in-class services to dealers and institutional customers throughout our expanding geographical footprint while benefiting all stakeholders, including employees and our investors.”
Especially if you are a regular consumer of Auto Remarketing content, you might agree with Kerrigan Advisors that the auto dealership buy/sell market is on track for another record year.
The firm detailed how the market continued its momentous pace during the third quarter through its latest report released on Thursday. According to the Third Quarter 2021 Blue Sky Report, there were 81 dealership buy/sell transactions completed for a total of 225 transactions for the first three quarters of the year, a 21% increase over 2020’s previous record, according to information from The Banks Report, Automotive News and Kerrigan Advisors’ research.
Kerrigan Advisors projects that 2021 will finish with more than 350 transactions, which would be a new industry high.
The firm explained the increases in the Q3 buy/sell market were directly related to the industry’s continued historic record profits and revenue. Kerrigan computed that in the past four quarters, the average dealership saw revenue rise to new highs and earnings increase 168% higher than 2019.
“Month after month of record profits is driving the velocity of this historic buy/sell market, increasing valuations and fueling an unprecedented rise in capital availability,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “Today, most dealers’ cash accounts are awash in more profit than they could have dreamed of in a single year.
“This, combined with low inventory levels and minimal floorplan, is resulting in a tremendous deleveraging of dealers’ balance sheets enabling them to access larger amounts of debt to finance major expansion on attractive terms,” Kerrigan continued in a news release.
Kerrigan pointed out that despite 2021’s record profits, the vast majority of dealers expect profits to rise even further over the next 12 months, according to a firm survey, as inventory remains constrained and consumer demand remains high.
The firm said this sentiment has made dealers bullish on growth with 77% planning to acquire one or more dealerships over the next 12 months.
“Dealers have re-engineered their business model, accomplishing record profits with fewer employees and less operating expense. As quarter after quarter proves the advantages of today’s more efficient model, dealers are shifting from a 'more is more' mentality to a 'less is more' perspective for both employees and inventories, distancing themselves from auto retails’ antiquated pre-Covid economic architecture of less productive employees and an oversupply of inventory,” Kerrigan said.
Consistent with the industry’s positive profit outlook for 2022, the Kerrigan Index of the seven publicly traded auto retailers hit new records through the end of the third quarter, up 39.8% year-to-date, as it continued to outperform the S&P 500 Index by over 76%.
The firm pointed out that the publics were major players in the explosive buy/sell market with their spending on acquisitions coming in at a record $2.7 billion in the first three quarters of 2021, surpassing 2020’s full year record, and putting 2021 on track to be the most acquisitive year for the publics on record.
Kerrigan Advisors projects their acquisition spending for 2021 will reach more than $7 billion.
“This is a remarkable number which will surely cement 2021 as the most acquisitive year on record for the public acquirers,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “Wall Street is rewarding these companies with higher valuations believing that an investment in the consolidation of auto retail is one that will pay future dividends. Since Wall Street is paying a price premium for the most acquisitive companies, it is not surprising to see all of them make US dealerships acquisitions in 2021.”
Kerrigan added that private buyers continue to dominate industry consolidation, albeit less than they did in 2020 given the publics’ renewed commitment to acquisitions, acquiring 86% of franchises sold in the first three quarters of 2021.
The firm went on to mention that multi-dealership transactions were also important factors in the first three quarters of 2021: an unprecedented 79 multi-dealership transactions were completed, representing 35% of the total buy/sell market.
Among the franchises being acquired, import non-luxury franchises continue to see increased market share relative to 2020, with 38% of the buy/sell market, according to Kerrigan.
Future trends & multiple outlook adjustments
Kerrigan Advisors identified the following trends that firm experts see as being important and impacting the buy/sell market into 2022, including:
— Sellers’ value expectations rise as pre-COVID earnings become less relevant to today’s business
— Valuation drivers for large groups differ from individual franchises
— OEM framework agreements create some limitations for the largest consolidators
Meanwhile for the third quarter, Kerrigan Advisors made positive adjustments to four blue sky multiples.
Toyota’s high-end blue-sky multiple was increased from 7.0 to 7.25 with its outlook remaining positive.
“Our dealer survey highlighted the rising value of the Toyota franchise with the majority surveyed expecting the franchises to increase in value,” Ryan Kerrigan said. “This is consistent with our recent experience selling multiple Toyota dealerships. As auto retail enters a period of evolution, dealers are confident in Toyota’s future franchise value due to its supportive partnership with its dealer network.”
Kerrigan Advisors also increased Hyundai’s and Kia’s blue-sky multiples on the high-end to 4.5 from 4.0 and on the low-end to 3.5 from 3.0 and moved their outlooks from steady to positive.
The firm explained Hyundai and Kia become the second and third highest ranked franchises by dealers in expectations for increased valuation, leapfrogging over last year’s survey leaders Subaru, Porsche, Honda, Mercedes-Benz and Lexus.
Nissan’s high-end blue-sky multiple was increased to 3.5 from 3.0 and its low-end multiple to 2.5 from 2.25, as Nissan saw a significant improvement in the survey with 22% of dealers expecting Nissan to increase in value, compared to just 8% in 2020.
Kerrigan Advisors kept Nissan’s multiple outlook positive as further increases may occur over the next 12 months with continued improvements in dealership profits.
Other highlights from Q3 report
The firm mentioned several other highlights from the Q3 2021 Blue Sky Report, inclduing
— Auto dealerships’ average earnings for the last four quarters were $3.8 million, more than double the pre-pandemic annual average.
— In Q3, blue sky values were up over 60% from pre-pandemic levels.
— 79% of auto dealers expect their profits to rise further over the next 12 months.
— 77% of auto dealers plan to acquire one or more dealerships over the next 12 months; only 3% plan to sell.
— The Kerrigan Index is up 39.8% year-to-date, outperforming the S&P 500 Index by over 76%.
— 79 multi-dealership transactions were completed in the first three quarters of 2021, representing 35% of the total buy/sell market.
— Market share for import non-luxury franchises increased to 38% of the buy/sell market.
— The top 5 franchises expected (by dealers) to increase in value are all import non-luxury franchises: 1. Toyota, 2. Hyundai, 3. Kia, 4. Subaru, 5. Honda.
— The luxury franchise buy/sell market share dropped from 20% in 2020 to 16% in 2021. The firm said that’s possibly due to increased competition from Tesla, coupled with uncertainty about the future luxury business model.
— Domestics improved their buy/sell market share in the third quarter relative to the second quarter, with Chevrolet, Ford, Buick GMC and CDJR in the lead.
— Public auto retailers’ earnings increased 140%, versus 2020, to a record $4.5 billion in net income over the last four quarters.
— Public auto retailer spending on acquisitions was a record $2.7 billion in the first three quarters of 2021, surpassing 2020’s full year record.
—I n Q3, the publics added a net of 95 franchises, 80 more than 2020.
— Lithia and Asbury were the most acquisitive in 2021 and have the strongest valuation metrics in 2021.
— Private buyers dominate industry consolidation, representing 86% of all franchise acquisitions for the first three quarters of 2021.
— Kerrigan Advisors estimates that the average dealership real estate values rose to $11.9 million in the third quarter of 2021.
— Dealership rent expense reached a record $831K on a trailing twelve-month basis; however, high rent payments were offset by record gross profits: the rent-to-gross profit margin declined to 8.8%, the lowest level in over a decade.
— Rising rents are particularly evident in the luxury OEM segment at an average of more than $1.3 million. Kerrigan Advisors is expecting real estate investment requirements will continue to be a factor in luxury dealers’ decisions to sell.
— 61% of dealers expect the value of their dealership/dealership group to increase in the next twelve months.
To download the entire report, go to this website, and review the Kerrigan Auto Retail Index, go to this website.
While a Maryland Lincoln dealer near the nation’s capital is in construction mode, a store manager with more than 20 years of industry experience purchased his own dealership on the West Coast.
Separate news releases detailed Alex Perdikis’ plans for a new Lincoln rooftop in Bethesda, Md., and Vikas Mehandroo fulfilling his goal of becoming a Ford dealer.
According to the announcement from Performance Brokerage Services, which was involved in the transaction, Mehandroo acquired Perry Ford in Poway, Calif., from Perry Automotive Group.
Performance highlighted that Mehandroo came to the United States 21 years ago and was introduced to the automotive industry as a salesman.
“He quickly realized that it wasn’t only about the cars, but about serving the people,” the firm said in the news release.
After selling cars for nine months, Mehandroo was promoted to finance manager where he stayed for the next four years until he became general manager.
Over the course of the next 12 years, Mehandroo served as general manager for multiple dealerships and franchises, including Toyota, Infiniti, CDJR, Nissan and Ford.
Performance indicated that Mehandroo decided he was ready for the next chapter in his career. In February, he made a commitment that he would be a dealer principal by the end of the year.
“It all started 10 months ago with a simple phone call to Performance Brokerage Services. The fact that Jason and Jesse Stopnitzky spent 50 minutes on the first phone call with a first-time purchaser told me they are the only people to do business with,” Mehandroo said in the news release.
When Performance Brokerage showed Mehandroo the Ford dealership in Poway, he claimed it was “love at first sight.”
Mehandroo added, “Ford is the greatest OEM, with a fantastic minority owner’s program.
“Jason Stopnitzky has been a guide, a friend, a mentor, and above all an inspiration to never give up,” Mehandroo continued. “From day one, Jason always made me feel at home and never made me realize this was my first deal. There are a lot of people in the market who will make you a deal, but only Performance Brokerage Services will take care of you like their own. I owe it to Jason for my first store, there is no way that I could have done it without him.”
Jason Stopnitzky gave this positive assessment of Mehandroo’s future.
“We wish Vikas Mehandroo much success with his first store and have no doubt that this is just the beginning for him. He does what he says and says what he means. It was a pleasure getting to know him through this process and we look forward to working with him again in the future,” Stopnitzky said.
Meanwhile for the Perry Automotive Group, it’s been a journey, too.
Perry Automotive Group purchased Perry Ford of Poway in 1996. As long-time Ford dealers in central California, co-owner Perry Falk acquired the Poway location and relocated his family to San Diego. The group consists of Perry CDJR and Perry Ford of National City, Perry Ford Lincoln and Perry Volkswagen of San Luis Obispo and Perry Ford of Santa Barbara.
Co-owner Deborah Falk said in the news release, “Selling a family business is hard enough, but selling a split-family business is extra difficult. Jason Stopnitzky of Performance Brokerage Services was a great intermediary for us and was very respectful of my interests. He listens to what you want and he finds the deal to make it happen. He exceeded my expectations.”
The dealership will remain at its current location at 12740 Poway Road in Poway and will be renamed Aaron Ford of Poway. According to the news release, the store is being named after Mehandroo’s son.
Perry Automotive Group was represented by James P. Barone of Ferruzzo & Ferruzzo LLP in Newport Beach, Calif.
Mehandroo was represented by the Law Office of Jason B. Cruz in Redlands, Calif.
New Lincoln store coming in Maryland
In the other news release distributed last week, Alex Perdikis, principal owner of Koons Lincoln of Silver Spring, has announced the expansion of his dealership holdings into downtown Bethesda with Koons Lincoln of Bethesda.
Perdikis highlighted the new dealership, housed in a multi-million-dollar state-of-the art facility will showcase Lincoln's luxury line of SUVs in the heart of Bethesda’s newly revitalized commercial and residential district.
Slated to open early in 2022, the new 4,300-square-foot dealership is set to be located at 7315 Wisconsin Avenue in Bethesda. The rooftop will feature Lincoln Navigators, Aviators, and other models in an innovative street level storefront.
In addition, Perdikis said vehicles will be showcased to the public in an elegantly illuminated glass runway.
Designed to evoke a glass display case, Perdikis said the runway provides ample space for shoppers to browse Lincoln models and is an exciting exterior focal point of the Lincoln Boutique store.
Perdikis added that the dealership, designed by Bethesda-based Penney Design Group, will entice shoppers with additional amenities including a spacious modern lounge, coffee bar, private sales suites and more.
Perdikis mentioned that he was motivated to expand into the area by the resurgence of the Bethesda center city district, joining the revitalization effort that includes a full roster of new restaurants, shops and residential spaces.
“We’re excited to bring this destination Lincoln Boutique and new career opportunities to Bethesda,” Perdikis said. “We’re pleased to be a part of the development and growth of this emerging area. The new location provides a great opportunity for window shoppers to discover Lincoln's premium luxury brand. We invite everyone in the area to stop in for a cup of coffee and say hello.”
In addition, this location will include The Lincoln Black Label Suite, offering custom designer curated vehicle interiors and upgraded customer amenities. This space is designed to provide a quiet sanctuary where Black Label clients can explore the exclusive themes and offerings and make informed purchase decisions.
The new Bethesda Lincoln Boutique store will serve as an additional base for the Koons home shopping service, available for those who prefer the convenience of home shopping and test drives.
For added customer convenience, Koons Lincoln of Bethesda will offer a dedicated Lincoln mobile service van. Clients can have routine services completed at their home or office and forgo a trip to the dealership all together.
“In keeping with the legacy of the Lincoln brand, this location is true to that heritage while expressing the sleek modernity, design updates and technology that has come to define this very popular luxury brand,” Perdikis said.
