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Dealership Buy/Sell Activity Jumps 60% in Q1

The Kerrigan Quarterly Blue Sky Report also finds that blue sky pricing remains high for most franchises, with the market having established a pricing floor.

by Staff
June 24, 2014
2 min to read


IRVINE, Calif. — Kerrigan Advisors, a firm specializing in serving dealership sellers, released its quarterly report on dealership buy/sell activity in the U.S. Market. It found that such activity increased dramatically in the first quarter.

Laying out the high, average and low multiples for each franchise in the luxury and non-luxury segments for the quarter, the Kerrigan Quarterly Blue Sky Report offers a detailed view of public and private company dealership acquisition activity. In addition to the sharp spike in selling, the report found that that blue sky pricing remains high for most franchises and that the market has established a pricing floor.

“As anticipated, an increase in the number of sellers coming to market has led to a major uptick in buy/sell activity,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “We attribute this to high blue sky prices, buyer demand for dealerships and a slowdown in dealership profit growth, meaning sellers are concerned about missing the market and want to ensure they exit on top.

“Private companies continued to dominate the market in quarter one, although public company activity rose slightly during the quarter and will likely continue to pick up after the announcement of Lithia’s acquisition of DCH,” she added. “The publics, however, are being very disciplined with their capital allocation. If they believe the better investment is their own stock, they are choosing a stock buyback over an acquisition. In the first quarter, collectively, they chose to spend 70% more on their own stock than on U.S. acquisitions.”

The firm found that buy/sell activity increased 60% in the first quarter and that more sellers are coming to market to capitalize on high blue sky values that may fade as earning growth slows. Blue sky values remain at elevated levels as dealership earnings continue to grow, albeit more slowly; and multiples remain high or reach higher levels.

The multiples for Honda, Toyota, BMW, Mercedes, Lexus and Porsche have increased since 2013, the report noted. As competition for auto retail market share heats up, buyers are placing an even higher premium on these franchises. And with the average dealership earning an annual 28% return on equity, few dealers are willing to sell their franchises for less than a 3x blue sky multiple in today’s market.

“While the future continues to look rosy for dealership acquisitions, we will likely start to see some negative shifts as increasing competition for car sales brings blue sky winners and losers,” Kerrigan concluded.

To read the full report, click here.

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