Buy/sell market shows strong 2019 start with 54 completed
transactions in Q1 2019, in spite of new vehicle sales slowdown;
stability of dealership profitability and increase in sellers to market
contributes to robust transaction activity; peaking real estate values
and industry debt levels spike market risk, according to The Blue Sky
Report® released by Kerrigan Advisors.
IRVINE, Calif.–(BUSINESS WIRE)–#blueskyreport–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
“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
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
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
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
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
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.
Kerrigan Advisors Media Contact:
Melanie Webber, 424.603.4340