IRVINE, Calif. — Despite slowing auto sales and a slight dip in Blue Sky Values — all of which were offset by high dealership real estate prices — dealership buy/sell activity remained robust in the first quarter, according to Kerrigan Advisor’s The Blue Sky Report.

Outpaced by the privates in acquisition activity, publics are directing their focus to non-U.S. acquisitions. According to the firm's report, macroeconomic conditions, which offer opportunities for both optimism and pessimism, are contributing to a high level of activity in the buy/sell market, which is expected to continue throughout the year.

“2017’s buy/sell market is fueled by diverging viewpoints from conservative sellers and ambitious buyers and is influenced by consistently high real estate valuations. Those confident in the long-term health of auto retail continue to seek acquisitions and investments,” said Erin Kerrigan, managing director of Kerrigan Advisors, a national dealership buy/sell advisory firm. “By contrast, the pessimists and those who are generationally ready to go out on a high note are increasingly choosing to exit the market, selling their dealerships at today’s high prices and avoiding a potential downturn — all of which contributes to a very active and robust buy/sell market.”

Laying out the high, average and low multiples for each franchise in the luxury and non-luxury segments for the quarter, the report offers a detailed view of public and private company dealership acquisition activity.   Key findings from the Q1 2017 report include:

  • Dealership real estate prices and rents rose considerably on a quarter-over-quarter basis. Real estate, for most dealers, is their highest value asset, far exceeding franchise value.
  • Transaction activity increased slightly in the first quarter of 2017, exceeding 2015 and 2016’s high pace with 60 buy/sell/sell transactions completed in the quarter.
  • 2017 is tracking towards 240 transactions for the year.
  • The number of multi-dealership transactions declined from 19 to 11. Kerrigan Advisors expects the pace of multi-dealership transactions to increase considerably as the year progresses.
  • Public retailers’ acquisition spending decreased 12%. Since January, The Kerrigan Index, which includes the seven public auto retailers, is down 9.6% to 492, underperforming the S&P 500.
  • The private sector acquired 93% of the franchises sold in the first quarter of 2017.
  • Domestics continued to grow their share of the buy/sell market — a trend driven by the growing market share of trucks and SUVs.
  • Import luxury franchises’ share of the buy/sell market declined by 45%.

“Overall, we continue to expect 2017 to be a very active year for buy/sells with private buyers, new entrants and certain public buyers eager to put their capital to work,” Kerrigan said. “An increasing number of sellers are coming to market motivated by current prices and a strong desire to capitalize on today’s buy/sell activity.”

The Blue Sky Report, a Kerrigan Quarterly, is published four times a year and includes Kerrigan Advisors’ signature blue sky charts, multiples and analysis for each franchise in the luxury and non-luxury segments. The multiples are based on Kerrigan Advisors’ view of franchise values in the current buy/sell market and can be applied to adjusted pre-tax dealership earnings to estimate blue sky value. To download the report, click here.