What the 2021 Q3 Haig Report reveals about the automotive M&A market

As we’ve seen throughout much of the year, the buy-sell market is hot and dealership profits are through the roof. Haig Partners recently released their Q3 2021 Haig Report which details today’s buy-sell automotive landscape. On today’s show, we’re pleased to welcome Alan Haig, President and Founder of Haig Partners to go further in-depth on their findings.

It has been an incredible time to be an auto dealer says, Haig. Since the beginning of the pandemic in March of 2020, the market has had a steady rebound. They have blown through all previous records, regarding dealership profits. Haig says it’s coming from every department. New and used vehicle margins have exploded because there’s a lack of supply. Fixed operations have also rebounded to pre-pandemic levels.

It’s been another explosive quarter in terms of deal volume. Haig says they are on track for 575 dealerships to trade hands. For public companies, they estimate $8 billion dollars they will spend on acquiring dealerships in 2021. Prior to the pandemic, they were spending between 700 million and $1 billion. A few transits that drove that were income taxes spiking and competitive upsurge with companies trying to grow and Lithia has been leading the public companies for several years. Now everyone has jumped back in. It’s not just the public companies, but private companies are looking to grow as well.

Haig says we’re going to see battles for auto dealers in the future. He says right now conditions are going to be as good as they get. Dealership profits haven’t peaked and current conditions are unbelievably positive. Haig believes dealers enjoy having a direct relationship with consumers. They consider the car buyer, their customer not the OEMs customer. He also thinks they are concerned with what could happen if they become a sales distribution point and not a retailer. Haig says there’s a risk of dealers losing significant profits.

The conditions we have right now in auto retail are going to remain for the next few years and this will be great for dealers say, Haig. He does believe, we will continue to see a loss in market share to other new entrances. Many luxury dealerships have been overtaken by Tesla. Telsa’s the number one luxury brand in California. It does remain to be seen if that takeover will happen in any other state.

Haig says they’ve come up with a formula to take two years of pre-pandemic earnings, add in the last 12 months, averaging those three years to get a valuation for a dealership. He says the market is moving faster than they expected. Their formula is likely going to be readjusted for Q4. It’s a moving target and it has to do with the dealer’s confidence says, Haig. It’s going to be an incredible year for dealers next year and they see buyers having confidence in that, which helps dealerships’ values remain strong or increase.

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