Erin Kerrigan, managing director at Kerrigan Advisors, conducted an electrifying interview on the latest episode of Inside Automotive, revealing the seismic shifts in the automotive industry. The discussion revealed that dealership transactions hit a record-breaking high and that the landscape is evolving due to capital abundance and strategic reinvestments.
Kerrigan unveils insights from the monumental 10th annual Kerrigan Blue Sky Report, shedding light on the nuances of dealership valuations, the burgeoning influence of electric vehicles, and regional market trends redefining the automotive retail sector.
Key Takeaways
1. According to the report, Kerrigan reveals that the automotive dealership buy-sell market in 2023 saw significant activity, with over 395 transactions and 680 franchises involved. This period included some of the highest-priced transactions in the industry’s history, like the sale of the Koons Automotive.
2. Dealers are not heavily relying on debt markets for acquisitions but are instead using their capital reserves. Despite a decrease in earnings from peak levels in 2021 and 2022, the industry still enjoys substantial capital, encouraging dealers to reinvest in the automotive sector.
3. Although there has been a slight decrease in dealership valuations, they have not fallen as much as one might expect. This reflects a cautious approach to valuation during the earnings spikes of 2021 and 2022. Moreover, analysts are valuing dealerships based on their projected earnings, which are now starting to stabilize.
4. High-growth markets like Texas and Florida have seen record valuations, especially for top franchises. Additionally, publicly traded dealership groups were less active in acquisitions compared to private dealers, possibly due to stock market volatility and challenges in achieving accretive transactions.
5. The transition to EVs and the accompanying regulatory requirements, especially in CARB states, impact dealership valuations and market dynamics. There is a growing focus on current earnings for valuation, with adjustments expected due to the EV market share and regulatory challenges.
"We had over 395 transactions completed for 680 franchises. That is the second highest rate we've ever seen in our industry" – Erin Kerrigan
