M&A activity stays in high gear across automotive industry

Today on Inside Automotive, we’re pleased to welcome back Alan Haig, President and Founder of Haig Partners, to give us his perspective on the industry right now on the heels of a successful AutoTeam America Buy/Sell Summit and Dealer/CEO/CFO Forum at NADA. We’ll also take a look at Haig Partners’ recently released Q4 2021 Haig Report.

One of the hot button issues discussed at the Summit was inventory supply. The data suggests that manufacturers will have to ver-produce for the next two and a half to three years to catch up with the normal level of consumer demand. In light of this, many people have asked Haig — How long will valuations stay this high? After looking at the production supply balance, Haig thinks the industry will see elevated margins and profits for at least the next two years.

The first quarter of 2022 has the same excellent conditions as the end of 2021, says Haig. In fact, Q1 2022 is outperforming Q1 2021. The biggest concern Haig sees is not a lack of demand, but the compounding effects of low inventory supply. Many auto dealers are responding to this by raising their prices higher than MSRP. Others have committed to selling at MSRP, however, supply constraints are becoming even tighter.

The M&A market, on the other hand, continues to build momentum. In Q4 of 2021, buy/sell activity exploded, says Haig. Over 640 rooftops traded hands last year, by far the most he’s ever seen. Value has also gone up significantly for car dealerships. The public companies spent around $9 million acquiring dealerships last year. Prior to the pandemic, they were acquiring on average 25-30 stores per year. Last year, that number jumped to 220.

Privately-owned dealer groups are also very active in M&A. They bought 35% more stores in 2021 than they did pre-pandemic. So far, 2022 has a similar environment, and Haig Partners is on pace for another robust year.

“The volume of buyers continues to expand,” says Haig. “And people that might have, a little bit, on the fence before the pandemic — they weren’t sure if there was a recession coming, now they’re seeing their profits blow up.”

The significant increases to dealers’ bottom lines are really what is driving higher valuations, explains Haig. Some franchises are doing better than others. For example, Toyota is one of the most desirable, if not the most desirable brand right now. Korean brands have appreciated in value as well.

On the luxury side, Haig says Tesla has taken a large market share away from luxury brands. Tesla is also making inroads further east into the U.S. However, brands like Mercedes-Benz and Audi are heavily investing in EVs to compete with the likes of Tesla and Rivian.

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