U.S. dealership buy/sell activity up 75% in first six months of 2014

by: DealersEdge

Buy/sell action for U.S. dealerships continued to increase dramatically in the first half of 2014, up 75% year-over-year, according to The Blue Sky ReportTM, released recently by Kerrigan Advisors.

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. In addition to the continued rise in transaction activity - 95 dealership transactions in the first half of the year, versus just 54 in first half 2013 - key findings include that private buyers continue to lead buy/sell activity, luxury blue sky pricing is soaring, franchise price differentiation is increasing, and GM franchise acquisitions in the first half of 2014 have surpassed 2013 totals.

"We predict that, at the current pace of acquisitions, 2014 will see at least 200 dealership buy/sells, driven in large part by record blue sky values and an aging dealer body," said Erin Kerrigan, founder and managing director of Kerrigan Advisors. "However, we are seeing signs that the sharp rise in sellers coming into the market (offering buyers a greater selection of opportunities) is starting to put pressure on the blue sky values of certain lower demand franchises."

Report highlights

• Total transaction activity up 75% in the first half of 2014, as compared to first half 2013.
• Luxury blue sky pricing appears to have few limits, given the limited supply of luxury US franchises and the robust growth in luxury auto sales.
• Lithia and Group 1 saw their P/E multiples grow at double the pace of the sector in the second quarter, 32% and 39% respectively, versus 16% for the sector - Kerrigan Advisors believes the growth in Lithia and Group 1's valuation is driven by their commitment to dealership acquisitions.
• AutoNation continues to allocate its capital to stock buybacks ($182M in the first half, more than all of the other public companies combined) and still has not completed an acquisition this year (though there are rumors a large acquisition in on the horizon).Private buyers continue to lead acquisition activity. The top 10
• private acquirers over the last 18 months acquired 25% more dealerships than the six publics during the same time frame.
• High demand geographies result in premium blue sky pricing for certain franchises, particularly domestics.
• Multi-dealership transaction activity rose 40% in the first half of 2014, versus 2013 - transaction sizes are growing.

"The balance of 2014 promises a vigorous acquisition market; however, the industry should prepare itself for a slightly less robust acquisition future," Erin Kerrigan, founder of Kerrigan Advisors. "While large transactions are expected to rise in the near term, spending will slow as acquirers digest their acquisitions. Moreover, when auto sales slow (as predicted by industry analysts), pressure will come to bear on blue sky pricing: the closer we get to 17 million SAAR, the closer we get to the peak of blue sky values."

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U.S. dealership buy/sell activity up 75% in first six months of 2014
U.S. dealership buy/sell activity up 75% in first six months of 2014