Buy/Sell auto dealership activity is set to rebound to record levels in 2017, according to Kerrigan Advisors' The Blue Sky Report.
Although there was a slight decline (8%) in overall transaction activity in 2016, and rising real estate costs are set to present a challenge for buyers, an increase in serious sellers coming back into market, improved valuations, private buyer demand for large acquisitions, advantageous market fluctuations. The Trump Bump is also driving optimism for a robust 2017, says Erin Kerrigan, Managing Director of Kerrigan Advisors.
“Most dealers understand that the opportunity has passed to obtain above-market blue sky prices and, instead, are satisfied knowing that today’s valuation levels are still very high, particularly on a historic basis,” Kerrigan said. “Buyers are finding pricing more reasonable in part because today’s sellers are serious about a sale. The market testers who were seeking 'crazy' blue sky values have primarily returned to operating their businesses, discovering those unrealistic values were not attainable.”
According to the report, 221 dealership buy/sell transactions were completed last year, compared to 2015’s record of 241 transactions. 57 multi-dealership transactions were completed last year, resulting in an 8% increase over 2015’s record.
Ford, Chevrolet, Toyota, Honda and Subaru dealerships are likely to be chief targets of acquisition activity.
Domestic franchises saw their buy/sell market share increase by 42% in 2016. With truck sales still on the rise, domestic buy/sells will continue to dominate the 2017 buy/sell market.
Public auto retailers’ acquisition spending decreased 21% in 2016 compared to 2015, with Lithia and AutoNation the only publics to make acquisitions of US dealerships in 2016.
Publics sold nearly as many dealerships as they acquired.
The private sector acquired 89% of the franchises sold in 2016.
The average dealership’s real estate value is estimated at $10.3 million while the average dealership’s blue sky (goodwill) value is estimated at $6.6 million.
“Overall, we expect 2017 to be a very active year for buy/sells with private and more public buyers eager to put their capital to work. We find an increasing number of sellers coming to market motivated by current prices and a strong desire to capitalize on today’s buy/sell activity,” continued Kerrigan. “As more dealers find their succession plans have run their course, we expect the number of sellers to rise given the generational shifts underway in auto retail and the ageing of the US dealer network.”