IRVINE, Calif.--(BUSINESS WIRE)--The 2019 auto dealership buy/sell market rocketed to a strong start in Q1 2019, with 54 completed transactions, representing a 38.5% increase over Q1 2018, indicating that 2019 is on trend to be the sixth consecutive 200+ transaction year, according to the just-released First Quarter 2019 Blue Sky Report® by Kerrigan Advisors. In spite of a 3.2% new vehicle sales decline, continued profit stability and an increase in sellers coming to market is contributing to the robust outlook for the buy/sell market.
“As Kerrigan Advisors predicted, 2019 is shaping up to be another solid year for buy/sells and valuations,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “In the face of a decline in new vehicle sales, the diversity of the dealership business model continues to demonstrate its value through its ability to sustain profits. In addition, the influx of older generation sellers coming to market, coupled with private capital jumping into the void left by the publics, all add up to a promising buy/sell year.”
The first three months of the year reflect a shift in industry focus towards used vehicles, finance and insurance (“F&I”), and service and parts. Kerrigan noted that this shift to higher margin profit centers (used vehicle gross margin is three times that of new vehicles and F&I per new vehicle sold has risen 60% since 2010) is a key reason strategic buyers and outside investors remain interested in auto retail acquisitions, with particular interest in high performing dealerships representing strong franchises in growth markets. And, with aging dealers increasingly concerned over their ability to succeed in a consolidating, evolving auto retail industry, buyers are facing new opportunities, although increasing industry debt poses a looming risk.
According to the report, the healthy economy and strong financial markets means there continues to be a high rate of complex multi-dealership transactions. Among the franchises being acquired, domestics continued to grow their buy/sell market share, while import non-luxury franchises saw their market share decline, primarily driven by Hyundai, Kia, Mazda, Nissan and Volkswagen. Interest in top domestic franchises, such as Chevrolet and Ford, as well as top non-luxury imports, such as Toyota, Honda and Subaru remain high.
“In the face of all these positives in the market, it must be noted that the outlook is less promising for some players, especially weaker, lower performing franchises with low buyer demand who are finding it more difficult to find a buyer, particularly at a strong price,” noted Ryan Kerrigan, Managing Director of Kerrigan Advisors. “Another factor to watch is that dealership rents appear to have peaked, with Q1 2019 showing a decline for the first time in 10 years. We expect that many dealers are realizing that their businesses can no longer support these high rent levels and, as rents fall, real estate values often follow.”
The report also highlighted that image upgrades required by OEMs are sending sellers to market, but, because these sellers are unwilling to invest the capital required to become facility-compliant, their dealerships will sell at a lower blue sky value in 2019.
In addition, the report identified the following three trends, which are expected to meaningfully impact the buy/sell market through the remainder of 2019.
- Dealership real estate values start to peak
- Industry debt levels increase buy/sell market risk
- Auto retail’s lack of a dominant public consolidator opens the door to private capital
Highlights from the First Quarter 2019 Blue Sky Report® by Kerrigan Advisors include:
- 54 dealership transactions were completed, representing a 38.5% increase over the first quarter of 2018.
- Significant increase in used to new sales ratio (.96). Kerrigan Advisors expects the industry to continue to move towards a 1:1 used to new ratio.
- 14 multi-dealership transactions, representing 26% of the buy/sell market in the first quarter.
- Domestics buy/sell market share increased 5.5% in the first quarter to the highest level in five years.
- US public auto retailers’ acquisition spending in the US decreased 68.6% in the first quarter of 2019 compared to the first quarter of 2018, primarily driven by the downward slide in their stock prices.
- Publics sold 18 franchises, for a net decline of 13 franchises.
- Private buyers acquired 95% of the franchises sold in the first quarter of 2019.
- The average dealership saw a 2.2% decline in rent in the first quarter of 2019.
- Dealership real estate remains auto retail’s most valuable asset class, exceeding blue sky on average by 67.1%.
- Kerrigan Advisors’ assessment of blue sky multiples for Q1 2019 remained relatively stable.
- Kerrigan Advisors downgraded Audi’s high-end multiple from 8.25 to 8.0.
- Kerrigan Advisors upgraded Volvo’s high-end multiple, from 3.5 to 4.0
The Blue Sky Report®, published by Kerrigan Advisors, is the auto retail industry's most comprehensive and authoritative quarterly report on dealership M&A activity, as well as franchise values. It includes analysis of all transaction activity for the year, and lays out the high, average and low blue sky multiples for each franchise in luxury and non-luxury segments.
For more details and to preview the report, click here.
Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report® which includes Kerrigan Advisors’ signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments. The company also releases monthly The Kerrigan Index™, composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail. To access The Kerrigan Index™, click here.
Erin Kerrigan is Founder and Managing Director of Kerrigan Advisors, and is a recognized industry expert on dealership valuation, real estate and buy/sells. A sought-after commentator on automotive retailing topics ranging from consumer auto buying trends to auto retail consolidation to private equity in auto retail, she has keynoted numerous automotive conferences and her analysis has appeared in publications such as Automotive News, CNBC.com, The Economist and the Wall Street Journal. For a recent video of Erin’s commentary on the market, click here.
Ryan Kerrigan is Managing Director of Kerrigan Advisors and an expert on US auto retail buy/sells and capital-raising transaction work. Prior, Ryan served as Managing Director at Serent Capital, a $250mm private equity fund investing in middle market companies and served as General Manager of his family’s auto dealership. Mr. Kerrigan began his career as a management consultant at McKinsey & Company, where he advised Fortune 500 companies on growth strategies, organizational issues, pricing and business valuation.
About Kerrigan Advisors
Kerrigan Advisors is the leading dealership buy/sell advisory firm focused exclusively on providing a high level of client service to dealers nationwide. Led by a team of veteran industry experts, Kerrigan Advisors customizes each sale process to maximize the seller’s transaction proceeds. The firm has sold 79 dealerships in the last five years, including five of the Top 100 Dealership Groups in the US. With the most comprehensive buyer database in the industry, Kerrigan Advisors has the industry context and expertise to match every seller with the right buyer. In addition to Kerrigan Advisors’ buy/sell and capital-raising transaction work, the firm also provides a suite of consulting services including growth strategies, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate .
In addition to the monthly Kerrigan Auto Retail Index™, each quarter, Kerrigan Advisors publishes The Blue Sky Report®, which is the auto industry's most comprehensive and authoritative quarterly report and analysis of dealership buy/sell activity and franchise values, received by over 9,000 industry recipients in 35 countries. Kerrigan Advisors’ Founder & Managing Director, Erin Kerrigan, is a recognized expert on dealership valuation, real estate, and buy/sells, and is a frequent speaker at leading auto retail events and conferences, including NADA, JD Power Automotive Roundtable, Automotive News’ Canadian World Congress, AICPA, and NADC. She has also been quoted numerous times by the Wall Street Journal and interviewed by The Economist and has been a keynote speaker for events hosted by American Honda Motor Company, Audi of America, US Trust, Ohio Automobile Dealer Association, and SunTrust Bank. Kerrigan Advisors’ Managing Director Ryan Kerrigan is also a sought-after industry expert. He is featured in a monthly column for Dealer Magazine and has written Op-Eds for Automotive News.