INCLINE VILLAGE, Nev .– (BUSINESS WIRE) – The car dealership’s purchase / sale market broke new records in 2020, despite starting the year with pandemic closings and blocks, and surpassed the previous 2015 watermark, redefining the value of the automotive retail market, according to the fourth quarter of 2020 and the Blue Sky® Annual Report by Kerrigan Advisors. Overcoming the stoppage at the end of the first quarter, the buy / sell market returned strongly in the second half: More than 176 transactions were completed after July 1, with a total of 289 completed in the year – an increase of 24% over 2019 and 47 more transactions than in 20151. In the fourth quarter alone, 103 transactions were completed – another record.
“This record market was driven by a resurgence in the profitability of dealerships,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “This happened even with a drop in revenue, thanks to improvements in gross profit from new and used vehicles and a reduction in the floor plan and SG&A expenses. Most impressive of all, the source of the highest profitability did not come from high-margin fixed operations, which actually decreased. ”
“It is important to note that the number of transactions with several dealerships continued to increase until the end of the year, setting another record (74 transactions), which is more than a quarter of all purchases / sales,” continued Kerrigan. “This reflects the trend towards significant consolidation in the automotive retail sector.”
Increasingly, according to the report, owners of large groups of dealerships are choosing to sell their businesses at the current high valuations, rather than accommodating the changes and investments needed in terms of electric vehicles and digital retail sales. This resilient – and resurgent – performance of automotive retail in 2020 increased demand for dealerships and continued to stimulate valuations. For the year, the average values of the blue sky of the concessionaires rose to US $ 7.7 million, an increase of 20.7% thanks to a combination of higher gains and increasing multiples. Valuation multiples have increased further in high-growth, business-friendly states such as Texas, Florida, Arizona, Colorado, Georgia, Nevada, North Carolina, South Carolina, Tennessee and Utah.
“The combination of today’s low-yield investment environment and access to low-cost financing has driven dealership ratings up,” said Ryan Kerrigan, managing director at Kerrigan Advisors. “Even with buyers adjusting 2020 profits to offset the impact of one-off events, profits for 2020 have reached record levels – and this has taken valuations to a higher level.”
Like the assessments of private concessionaires, publicly traded concessionaires also had a record year. The Kerrigan Index ™, made up of the seven groups of publicly traded concessionaires, reached a record level of 1,006 in March 2021, an increase of 238.6% over the March 2020 low. Audiences are changing their messages to focus on their distinct digital retail strategies and to embrace the industry’s shift to electrification. Armed with strong assessments, many are committing to growth through cumulative acquisitions; its advantage in the buy / sell market is access to lower cost capital.
In analyzing the brand-specific reviews report, Toyota’s multiple blue skies have been increased to a range of 6 to 7 times, reflecting the value of Toyota’s partnership model with its dealer network, especially as the industry shifts to fleets of electric vehicles and direct online sales.
“As the future unfolds, OEMs who value their dealer network’s contribution to their success are likely to thrive,” said Erin Kerrigan. “We increased Toyota’s multiple blue skies because we see a real partnership with its retailers. This relationship will ensure that Toyota’s franchise values remain high, even as the industry evolves toward a digital and electric future. ”This is important, according to the report, because in the fourth quarter of 2020 there was a dramatic shift towards electrification, with almost all OEMs presenting plans to develop a fleet of electrified vehicles as a result of political pressure, as well as in reaction to Tesla’s success on Wall St. and gaining a 79% share of the electric vehicle market.
“Manufacturers considering imitating Tesla’s retail strategy should keep in mind that the record 2020 profit was driven in large part by the ability of auto retailers to adjust prices,” said Ryan Kerrigan. “In a single price online arena, resellers’ ability to do this will be significantly reduced, as will revenue from future fixed operations.”
“How OEMs switch to electrical and online sales will determine the future value of the franchise,” continued Kerrigan. “Plans that support their dealership chains and value the contribution of the car retailer are likely to see their franchise values increase.”
The report also identified the following four market trends, which will have a significant impact on the buy / sell market in 2021 and beyond:
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Buyers’ tremendous access to capital leads to increased competition for dealership acquisitions
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Buyer demand in Texas and Florida drives higher multiples and valuations in those states
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Salespeople increasingly expect reviews that recognize the improved profitability of 2020
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Facility investments influence dealership transaction decisions
Highlights for the fourth quarter of 2020 and the full-year Blue Sky Report® of 2020 from Kerrigan Advisors include:
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The average values of the blue sky increased 20.7% at the end of 2020, driven by an increase in the earnings of the concessionaires and an increase in demand from buyers.
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The Kerrigan Index has risen 238.6% since March 18, 2020 and exceeded the S&P 500 by 232.7%. An important milestone passed on March 5º 2021, surpassing 1,000 for the first time in its history.
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2020 was a record year for purchases / sales, with 289 transactions completed, an increase of 24% compared to 2019
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103 transactions were completed in the fourth quarter.
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Luxury import franchises increased their share in the buying / selling market in 2020, reaching an impressive 20% of purchases / sales, an increase of more than 50% compared to the level of 2019.
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Average pre-tax profits from dealerships increased 48.3% in 2020, despite a 4.2% drop in revenue.
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Fixed operations accounted for only 44.6% of the dealer’s average gross profit in the fourth quarter of 2020, down 11.5% compared to 2019. Dealers increased gross profit margins on new and used vehicles by 32, 0% and 8.2%, respectively.
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More owners of large groups of dealerships are choosing to sell rather than compete with consolidators that rely on corporate, rather than personal, balance sheets to expand their businesses and invest in the evolving future of automotive retail.
The Blue Sky Report®, published by Kerrigan Advisors, is the automotive retail sector’s most comprehensive and reliable quarterly report on the dealer’s merger and acquisition activity, as well as the franchise values. The quarterly report, received by more than 9,000 industry beneficiaries in 35 countries, includes an analysis of all dealership transaction activities for the year and presents the high, medium and low blue sky multiples for each franchise in the luxury and leisure segments. not luxury. For more details and to view the report, click here. To subscribe and receive the quarterly report, click here.
Kerrigan Advisors also publishes The Kerrigan Index ™ monthly, composed of seven publicly traded automotive retail companies with operations focused on the United States market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while providing important information about the factors that influence automotive retail. To access the Kerrigan Index ™, click here.
About Kerrigan Advisors
Kerrigan Advisors is a leading sales consultant and thinking partner for car dealerships in the United States. The company advises car dealerships across the country, adding value throughout the life cycle of growth, operation and monetization of its businesses, in addition to offering consultancy services in restructuring and recovery. Kerrigan Advisors has represented in the largest automotive retail transactions, including seven of the top 150 dealership groups in the United States, more than any other company in the industry. Led by a team of veteran industry experts, the company does not accept listings, instead Kerrigan Advisors develops a personalized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors’ consulting and capital raising services, the company also offers a range of consulting services, including growth strategies, capital allocation, transactional due diligence, open-ended proposals, operational improvement and real estate analysis.
Kerrigan Advisors publishes The Blue Sky Report®, which is the automotive industry’s most comprehensive and reliable quarterly report on the dealer’s buy / sell activities and franchise values, received by more than 9,000 industry participants in 35 countries. To register to receive The Blue Sky Report®, click here. Kerrigan Advisors also publishes The Kerrigan Index ™, the only monthly report that tracks seven publicly traded automotive retail companies. To access the Kerrigan Index ™, click here.
1 Source: The Banks Report, Automotive News, Kerrigan Advisors’ Research