From acquisitions to shifting consumer preferences, in today’s episode of Inside Automotive, we’re discussing factors driving M&A activity as highlighted in The Blue Sky Report, published by Kerrigan Advisors. Joining us now is Ryan Kerrigan, Managing Director of Kerrigan Advisors.
Key Takeaways
1. Despite record profits in the U.S. automotive retail sector in recent years, there has been a notable trend of international acquisitions by U.S. auto retailers. This includes major deals such as Group 1′s purchase of Inchcape Retail in the UK, reflecting a shift towards better deals and opportunities in Europe due to headwinds.
2. Kerrigan delves into Europe’s challenges and slow adoption rate of electric vehicles (EVs). It highlights a realistic view that the immediate top-down switch to EVs, which some may have expected, is unlikely to happen quickly. Regulatory signals suggest a long transition period, acknowledging that EVs lost market share in certain quarters, indicating a more gradual shift.
3. The automotive buy-sell market has seen robust activity, with a record number of transactions in recent years. Despite increased financing costs due to rising interest rates, the industry has remained active, driven by strong dealership profits pre-COVID, healthy balance sheets, and continued private-to-private transactions.
4. Valuation methods have returned to traditional metrics, focusing on trailing 12-month earnings for dealership valuation. While pre-COVID earnings are less relevant now, there’s a discussion about emotional factors influencing acquisitions, especially when buyers have substantial cash reserves and a desire to acquire specific brands or franchises.
5. Moreover, Kerrigan touches on market trends, including the hottest markets for M&A activity, such as the Southeastern U.S. and the emerging importance of the Midwest. It also discusses how specific automotive brands are faring in the market, with some showing strong growth (e.g., BMW, Honda, Mazda). In contrast, others face challenges (e.g., Mercedes-Benz with slower growth, dealer relations issues, and perceived challenges in transitioning to EVs).
"Europe's auto sales surged in the first quarter, outpacing the growth seen in the U.S. market, signaling a potential shift in global automotive demand patterns." – Ryan Kerrigan
