What is driving buyers and sellers to the automotive M&A market?

The automotive buy-sell market is on a hot streak with continuous record-breaking activity. From public companies like Lithia Motors to private dealer groups like Zeigler Automotive, M&A activity is thriving and shows no signs of slowing down, according to this month’s Kerrigan Advisors Market Update. Here to discuss what exactly is driving buyers and sellers to the market is Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors.

The first quarter of 2021 saw a 20% increase in completed dealership transactions year-over-year. In fact, the industry as a whole has now completed over 300 dealership transactions in the first quarter alone. In comparison, there were only 206 transactions for the entire year of 2014 and 216 transactions in 2018. Multi-dealership transactions have also increased by 53.3% year-over-year. Multi-dealership transactions now make up 35% of total buy/sell deals. 

Kerrigan explains that the catalyst for this record activity is increased earnings due to high demand. The demand is then being met with a limited supply, so grosses have been hitting record highs as well. This is driving tremendous profitability for car dealers, who now have access to more capital which in turn leads to more transactions. 

This means that Blue Sky valuations are up as well. Valuations increased 10% year-over-year, and this is largely due to increased profits, the decline in cost of capital, and increased cash flow. According to Kerrigan, while some people might want to calculate valuations based on pre-pandemic levels, the success of 2020 actually increased valuations.

To hear more great insight from Erin Kerrigan, be sure to watch our entire interview above. You can also request the most recent Kerrigan Advisors Blue Sky Report Q1 2021, on the Kerrigan Advisors website today.

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