Buy/Sell transactions skyrocketed in 2021 indicating more consolidation ahead

On this edition of Inside Automotive, we’re pleased to welcome back Erin Kerrigan, Founder, and Managing Director of Kerrigan Advisors. Today Kerrigan walks us through the recently released, annual Blue Sky Report® to find out what took place in the buy/sell market last year and how those results might impact 2022.

It has been an unbelievable last 12 to 18 months in the automotive retail industry. “Every time you think it can’t get any more active, it appears to get more active,” explains Kerrigan. The tremendous amount of activity is driven by the fact that buyers and sellers see eye to eye on valuation.

There are also some similarities between the new vehicle market and the buy/sell market, such as the overwhelming demand. However, some dynamics are on the horizon, like rising interest rates, which might cool transactions down. Kerrigan explains that it’s almost an absolute if interest rates rise, then valuations will decline.

Kerrigan adds that everyone wants to redeploy capital into the auto retail business. So, even in markets where there is not much growth, car dealers are making a lot of money, and they want to buy their neighbors. There is a good deal of consolidation in every market, but population growth is the biggest driver of price premiums.

Electric vehicles do not have nearly the same weight on valuations. Kerrigan thinks that 2030 is an aggressive timeline for OEMs to go fully electric. She guesses that most of them won’t be at 100% by 2030.

One of the most interesting highlights from Kerrigan Advisors’ most recent annual Blue Sky Report® is the decline of the domestic buy/sell market. Kerrigan says this is due, in part, to lower multiples. “If you’re trading at a three or four multiple, let’s say at a four multiple, and you’ve quadrupled earnings, tour valuation is more of an average of the last few years,” she explains. Still, valuations are up significantly, but the value of a big business is generally the present value of future earnings.

Combine that with earnings and real estate values, and it’s easy to see the inflationary environment for all assets.

For more highlights from Kerrigan Advisors’ Blue Sky Report®, click here!

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