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M&A expert Erin Kerrigan breaks down industry outlook for the remainder of 2021

The 2021 market has been hot, but how long will it stay that way? On today’s show, we’re pleased to welcome Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors.

Kerrigan begins the conversation by discussing the buy/sell market. Just when you think it can’t get any better, it continues to surprise us all, says Kerrigan. It’s been an unbelievable first half and if we continue at this pace, we’ll hit another record year with 315 or more transactions. A normal year was between 150 to 200. This is remarkably high. The key is getting the deals done and pricing that works for the buyer and the seller.

Kerrigan believes the biggest driver of all the activity is everyone is ‘drunk’ on profits. The industry is the cash flow in auto retail. She says this has been proven once again that auto dealerships aren’t going anywhere and that they are a great investment. The buyer pool has such a high level of cash availability.

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The earnings of this year are a driver of increased valuation. Year-to-date, the average dealer is approaching $2 million of earnings. On average, from 2014 to 2019, the average dealer earns $700,000. Kerrigan says most buyers are saying they are going to give some credit to 2021, but also look to pre-pandemic earnings, and somewhere in the middle is the likely long-term earnings level. Ultimately, these higher earnings are leading to higher valuations.

Kerrigan says there’s no question the biggest driver in their view of the increase in sellers coming to market, is the tax risk associated with a new administration and a new tax policy.

Kerrigan ends the conversation by stating her predictions for the market. Kerrigan says it’s hard to predict what will happen in 2022. She believes, what we’re dealing with currently, concerning the chip shortage and inventory limitations will continue on into 2022. She also says, she doesn’t see demand declining anytime soon for cars. She’s expecting the industry to be strong throughout 2022 and maybe beyond.

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