2024 Auto Dealership Buy/Sell Market on Pace for Another Record Year

330 buy/sell transactions, representing a record 544 franchises, were completed in first nine months of 2024, according to the Third Quarter 2024 Blue Sky Report® by Kerrigan Advisors, as more sellers came to market to capture historically high blue sky values; nearly doubling pre-covid buy/sell levels, market velocity was also driven by the largest dealership groups seeking greater consolidation and divestitures of weaker franchises

The auto dealership buy/sell market rose to another record high, with 330 dealership transactions completed in the nine months ended September 30, 2024, representing 544 franchises sold, according to the just-released Third Quarter 2024 Blue Sky Report^® by Kerrigan Advisors. Up 93% compared to 2019, this market velocity was fueled by more sellers entering the market, as stronger franchises took advantage of historically high blue sky values, while weaker franchises were divested.

“The buy/sell market remained robust in the third quarter, hitting new records as the largest buyers leveraged their strong balance sheets and solid banking relationships to add further scale to their enterprise. At the same time, more sellers entered the market positioned to sell their businesses given the wealth they accumulated since the pandemic and historically high after-tax proceeds expected from a sale,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “Clearly, 2024 is on track to be another peak year for the buy/sell market as the positive outlook for the industry is underscored by the performance of The Kerrigan Index™ which, through November 7^th, was up 54% from its 2022 low, and just 17% below its all-time high.”

Of note in the report is the increased market share for the Top 150 US Dealership Groups reaching 30% of total industry revenue in 2023, up 5% in just five years. At this growth rate, Kerrigan Advisors projects the largest groups will represent the majority of industry revenue by 2043. The accelerating market share growth is due to the largest group’s preference for higher-volume dealerships. Since 2021, the average dealership revenue for the Top 150 Dealership Groups has risen 7% to over $83 million, 16% higher than the industry average, which has stalled at $71 million since 2021.

“If the consolidation rate continues, the Top 150 US Dealership Groups, which now represent nearly one third of total industry revenue, could account for 50% or more of industry sales in the next 20 years, potentially a tipping point for an acceleration in consolidation in the following decades,” continued Erin Kerrigan. “Major consolidators recognize the tremendous growth potential of an increasing supply of dealerships for sale, and are optimistic about their ability to pursue accretive acquisitions, supported by their rising stock prices, long standing banking relationships and the industry’s moderating blue sky values.”

More Sellers Entering the Market Driving Record Activity

A key factor driving record increased buy/sell activity is the stabilization of pre-tax earnings to a ‘new normal’ allowing buyers and sellers greater comfort to use current earnings as a basis for valuations. This improved clarity enhances buy/sell activity as sellers' and buyers' pricing expectations are increasingly aligned. Additionally, more sellers are coming to market as the wealth many of them accumulated during the pandemic enables and, in some cases, accelerates their retirement plans.

“Between 2020 and 2024, Kerrigan Advisors estimates the industry amassed three times the profits achieved in the four years before the pandemic, estimated at $278 billion,” said Ryan Kerrigan, Managing Director of Kerrigan Advisors. “Burgeoning capital accounts combined with high blue sky values are prompting more dealers, particularly those without a succession plan, to sell their business. This is particularly the case as the next generation considers the responsibility of growing their family business or considering an exit, knowing that inertia is not an option in the rapidly evolving auto retail market.”

While the stronger franchises, such as Toyota, are coming to market to capture historically high values, another trend fueling the rise in sellers is an increase in the number of dealer groups divesting their weaker franchises, reflected in the fact that, year-to-date, the publics divested 36 franchises, a 24% increase from 2023.

Franchises being divested have some of the highest days’ supply in the industry, the most significant declines in dealership profitability and the lowest Kerrigan Advisors blue sky multiples for their corresponding segment. For example, the franchises with the highest buy/sell market share for their respective segments - CDJR (32% domestic buy/sell market share), Nissan (20% import market share) and Infiniti (13% import luxury market share) - also have some of the highest days' supply and the most declines in dealership profitability.

Third Quarter 2024 Buy/Sell Trends

Kerrigan Advisors has identified the following three trends which it expects to meaningfully impact the buy/sell market into 2025.

• Expensive image upgrades, particularly for luxury import franchises, prompt more dealers to sell
• Larger groups’ stronger balance sheets and banking relationships increase their buy/sell market share
• Buyers less open to new markets, more focused on tuck-in acquisitions and local scale

The negative projected return on investment associated with expensive facility upgrades is a key trend driving more dealers to consider a sale in the near term, and it is bringing more luxury dealers to market. Average dealership rents have risen 32% since 2019, with luxury dealers’ rents increasing at the highest rate since 2020, making the impact of expensive image upgrades particularly pronounced for those franchises.

Second, in 2024, the largest private consolidators with strong balance sheets and banking relationships increased their buy/sell market share to 32%, a 66% increase, and their highest share since Kerrigan Advisors started tracking in 2018. For example, despite recent declines in cash flow, the publics have a near record amount of capital available at $7.15 billion, up 64% from 2019. This liquidity, a result of the build-up of pandemic earrings, is enabling consolidators to take bigger risks and lean into growth through acquisition.

Lastly, during the pandemic, buyers leaned into growth in almost any market, willing to take risks and seek expansion regardless of geography. Today, with gross profits down 13% from their peak, expense reduction and operating efficiency have reemerged as critical components to profitability and a dealership group's strategic plan. “With dealers now focused on identifying ways to share costs across their organization and seeking to leverage scale to their advantage, geography, market synergies and the efficiencies available in local and regional consolidation are a primary prerogative for most acquirers,” said Ryan Kerrigan.

Lexus and JLR Multiples Increase

For the third quarter of 2024, Kerrigan Advisors increased the multiple for Lexus to 8.0x on the low-end and 9.5x on the high-end, reflecting the high buyer demand for the franchise as well as Lexus’ impressive performance in maintaining low inventory levels and achieving high profits at its dealerships.

Kerrigan Advisors also increased the multiple for JLR to a range of 7.0x to 8.0x as demand for JLR franchises remains high with sales up 28.1% year-to-date through September for Land Rover, leading the luxury market in 2024. Additionally, JLR’s gross profit per vehicle is consistently superior as demand for the Range Rover and Land Rover lineup continues to be robust.

Porsche, Lexus, Toyota, Honda, Subaru and Kia’s Positive Outlook Reiterated

Kerrigan Advisors reiterated its positive outlook on Porsche, Lexus, Toyota, Honda, Subaru and Kia. Initial results of Kerrigan Advisors’ 2024 Annual Dealer Survey also support this outlook. Dealers have a high level of trust in these franchises, particularly Lexus, Toyota and Honda, all of which maintain low inventory levels and high average dealership profitability.

“Luxury brands like Lexus and JLR increasingly command higher multiples as they tend to deliver higher profits, and buyers are seeking these lower risk opportunities,” said Ryan Kerrigan. "On the other hand, buyers that are evaluating underperforming dealerships are applying lower-end multiples to their proforma to assess the blue sky value. As a result, blue sky valuations are often falling below pre-pandemic levels, even for franchises that were profitable prior to the pandemic."

Highlights from the Q3 2024 Blue Sky Report^® by Kerrigan Advisors include:

• 330 dealership buy/sell transactions were completed for the nine months ending September 2024, representing a record 544 transactions.
• 104 multi-dealership transactions were completed in the first nine months of 2024, representing 25% of the buy/sell market, a decline from 2021’s 33%. Nevertheless, multi-dealership transactions are 79% above pre-pandemic levels.
• Import non-luxury and luxury franchises’ buy/sell market share increased to record levels, 39% and 18%, respectively, in the first nine months of 2024, whereas the domestics’ buy/sell market share declined to 43% from 54% in the full year 2023.
• The average US dealership earned an estimated $0.9 million in the third quarter of 2024, down just 3% from the prior quarter as pre-tax earnings have stabilized at more sustainable levels.
• The publics divested 36 US franchises in the first nine months of 2024, a 24% increase from 2023 and nine more than they acquired.
• Average gross profits on new vehicles retailed for the US publics declined to $3,515 in the third quarter of 2024 compared to $3,794 in the second quarter, continuing a trend towards normalization.
• The publics’ spending on stock buybacks declined to 17% of capital allocation from a high of 51% in 2022, as spending on international and other acquisitions rose from 8% in 2022 to an all-time high of 32% year-to-date 2024.
• The US public dealer groups’ blended average blue sky multiple reached 6.5x in the third quarter, a 124% increase from 2022’s lows.
• The Kerrigan Index was up 54% from its low in 2022, through November 7th, and sits just 17% below its all-time high on September 29, 2021, demonstrating Wall Street’s positive outlook for the buy/sell market.

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. The quarterly report, received by over 11,000 industry recipients in 35 countries, includes analysis of all dealership transaction activity for the year, and lays out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments. For more details and to preview the report, click here. To sign up to receive the quarterly report, click here.

About Kerrigan Advisors

Kerrigan Advisors is the leading sell-side advisor and thought partner to auto dealers nationwide. Since its founding in 2014, the firm has led the industry with the sale of over 280 dealerships generating more than $9 billion in client proceeds, including the third largest transaction in auto retail history – the sale of Jim Koons Automotive Companies to Asbury Automotive Group. The firm advises the industry’s leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, Kerrigan Advisors does not take listings, rather they develop a customized sales approach for each client to achieve their personal and financial goals. In addition to the firm’s sell-side advisory services, Kerrigan Advisors also provides a suite of consulting and investor services including acquisition and expansion strategies, valuation assessments and benchmarking, open point proposals and real estate advisory.

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. To download a preview of the report, click here. The firm 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 here. To read the 2023 Kerrigan Dealer Survey, click here. To read the 2024 Kerrigan OEM Survey, click here. Kerrigan Advisors also is the co-author of NADA’s Guide to Buying and Selling a Dealership.

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