IRVINE, Calif. — Dealership buy/sell activity during the first half of 2017 reveals a notable willingness by auto dealers to take on minority and majority equity partners, according to analysis from the Blue Sky Report from Kerrigan Advisors. The report also shows that buy/sell activity through the first half of 2017 remained high. Kerrigan Advisors expects activity in the second half of the year to surpass the first half, resulting in the fourth year of more than 200 buy/sells.
“2017 is on pace to be a record year for equity partner investment structures,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “We think this shift in buy/sell activity is mostly due to the increasing size and complexity of the dealership groups coming to market. In addition, dealers are attracted to the opportunity to remain involved in the business post-transaction, while also taking some chips off the table.”
Key data and analysis from the first half of 2017 includes:
- 101 dealership buy/sell transactions completed in the first half of 2017, compared to 106 transactions during the first half of 2016.
- Multi-dealership transactions represented 25% of completed transactions in the first half of 2017. Those transactions saw a 23% rise in the number of franchises represented per transaction.
- Public retailers increased spending 61% in the first half of 2017, compared to the first half of 2016.
- Domestics’ share of the buy/sell market remained at 44%, while nonluxury imports saw their share of the buy/sell market increase to 39%.
- Toyota, Honda and Subaru dealerships enjoy high buyer interest, with consistently high profitability
- Amongst the publics, Lithia and Penske have acquired 21 US dealerships
- The private sector acquired 93% of the franchises sold
- Dealership real estate prices and rents rose slightly as compared to 2016
“We see resilience in the buy/sell market,” continued Kerrigan. “Even though SAAR is down, it remains within a historically high range. Auto sales in the first half of 2017 were actually 5% higher than the trailing five-year average, and dealerships remain highly profitable.”
The report identifies three key trends moving forward into Q3 and Q4 of 2017:
- Dealers take on majority and minority capital partners
- Reinsurance profits increasingly factor into buy/sells
- Retiring key operators prompt some dealers to sell
“One of the more interesting trends we see moving into Q3 and Q4 of 2017 is retirement-driven transactions, but not necessarily in the way you think,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “When a key lieutenant retires, that’s prompting some older dealers to sell, versus finding a replacement. As a result, the retirement of key management, in combination with the aging of the dealer body, is increasingly prompting older dealers to sell.”
To download the full report, click here.