Kerrigan Advisors’ newest Blue Sky Report highlighted a notable willingness by dealers to take on minority and majority equity partners along with eight other trends involving buy/sell activity through the first half of 2017, which the firm classified as high.
According the report released on Monday, Kerrigan Advisors also expects activity during the second half of the year to surpass the first half, resulting in the fourth year in a row of more than 200 transactions.
Erin Kerrigan, founder and managing director of Kerrigan Advisors said in a news release, “2017 is on pace to be a record year for equity partner investment structures.
“We think this shift in buy/sell activity is mostly due to the increasing size and complexity of the dealership groups coming to market,” Kerrigan continued. “In addition, dealers are attracted to the opportunity to remain involved in the business post-transaction, while also taking some chips off the table.”
The report noted key data and analysis from the first half of this year included:
• 101 dealership buy/sell transactions completed in the first half of 2017, compared to 106 transactions during the first half of 2016.
• Multi-dealership transactions represented 25 percent of completed transactions in the first half of 2017. Those transactions saw a 23-percent rise in the number of franchises represented per transaction.
• Public retailers increased spending 61 percent in the first half of 2017, compared to the first half of 2016.
• Domestics’ share of the buy/sell market remained at 44 percent, while non-luxury imports saw their share of the buy/sell market increase to 39 percent.
• Toyota, Honda and Subaru dealerships enjoy high buyer interest with consistently high profitability.
• Amongst the publics, Lithia Motors and Penske Automotive Group have acquired 21 U.S. dealerships.
• The private sector acquired 93 percent of the franchises sold.
• Dealership real estate prices and rents rose slightly as compared to 2016
“We see resilience in the buy/sell market,” Kerrigan said. “Even though SAAR is down, it remains within a historically high range. Auto sales in the first half of 2017 were actually 5 percent higher than the trailing five-year average, and dealerships remain highly profitable.”
The report also identified three other key trends moving forward into the third and fourth quarters of this year, including:
• Dealers take on majority and minority capital partners.
• Reinsurance profits increasingly factor into buy/sells.
• Retiring key operators prompt some dealers to sell.
“One of the more interesting trends we see moving into Q3 and Q4 of 2017 is retirement-driven transactions, but not necessarily in the way you think,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “When a key lieutenant retires, that’s prompting some older dealers to sell, versus finding a replacement.
“As a result, the retirement of key management, in combination with the aging of the dealer body, is increasingly prompting older dealers to sell,” Kerrigan went on to say.
Kerrigan Advisors is deeply involved in the buy/sell market having advised on the sale of 59 dealerships, including four of the Top 100 dealership groups in the U.S. Most recently, Kerrigan advised on the sale of Downtown LA Auto Group to Lithia Motors.
The Blue Sky Report, a Kerrigan Quarterly, is published four times a year and includes Kerrigan Advisor’s signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. The multiples are based on Kerrigan Advisors’ view of franchise values in the current buy/sell market and can be applied to adjusted pre-tax dealership earnings to estimate blue sky value.
To download the report, go to this website.