Things were looking rather bleak for the buy/sell market earlier in 2020 when factories, supply chains, and dealerships were shuttered, but the auto industry is bouncing back quite well, including in the realm of dealer acquisitions. Kerrigan Advisors, self-described as “the most experienced buy/sell firm in auto retail,” released its Q3 2020 Blue Sky Report this week and things seem to be looking up. Kerrigan reported “a significant acceleration” in the dealership buy/sell market and also predicted the upward trend would continue in Q4 2020.
Kerrigan’s report indicated that this year may even outdo 2015’s transaction record, which saw a total of 242 completed dealership transactions. The total number of buy/sell transactions in 2020 is at 186 so far, with Q3 alone seeing 73 buy/sell transactions. This is a 15.5% increase over Q3 2019, which is quite an impressive feat seeing as the auto industry was facing turmoil in March and April. Kerrigan managing director Erin Kerrigan stated that the massive increase “was driven by higher vehicle gross profit margins, reduced operating expenses, limited inventory (which drove up prices) and increased operational efficiency.”
Kerrigan’s report predicts that average dealership earnings will surpass $1.77 million if 2020 “continues at its current pace.”
The report noted that “public and private dealership valuations exceeded prior highs with the publics’ average blue sky multiple at the end of the third quarter at 7.6 times,” which makes dealership buy/sell transactions “highly accretive” to earnings. Valuations are boosted by the resilience of auto sales despite the pandemic along with the lower costs of dealerships we saw earlier in the year.
Sales are also attractive to small and family-owned dealers who are uninterested in creating a new business model in which “technology and scale drive profitability.” This is bringing more sellers to market, meaning more buy/sell activity for the industry.
One of the biggest buy/sell transactions of 2020 (and of all time) was the sale of Keyes Automotive Group to Lithia Motors. Nine dealerships were acquired by Lithia, which reportedly totaled $1.4 billion in revenue and increased Lithia’s annualized revenue to $3.2 billion. Lithia was also busy acquiring ten John Eagle Dealerships’ stores in a push to expand its presence in the South-Central region.
Asbury Automotive Group announced it had acquired Park Place Dealerships in late August, which is expected to lead to an additional $1.7 billion in annual revenues. The buy/sell transaction added to Asbury’s luxury stores since Park Place has some of the most profitable brands including a Mercedes-Benz store and a Porsche store. Conversely, Asbury’s Mississippi holdings were acquired by McLarty Automotive Group in March, which was projected to increase McLarty’s annual revenues by $400 million.
Also in March, the Ed Morse Automotive Group announced it had acquired three more dealerships in Texas to add to its expanding portfolio after previously acquiring seven other dealerships in 2019.
Kerrigan Advisors predicted Q4 has the potential to continue seeing growth because sellers may be looking to lock in this year’s tax rate and make use of current consumer demand for personal transportation as well as low interest rates. The firm also stated that the uptick in dealership buy/sell transactions will likely continue through the beginning of 2021.
