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Dealerships are hot properties, thanks in part to Warren Buffet

March 25, 2016
U.S. dealership buy-sell action reached record highs in 2015. New-entrant activity outpaced public-company acquisitions more than four to one, according to "The Blue Sky Report" from Kerrigan Advisors.
The report said store valuations rose to historic highs, the new players made sizable acquisitions, manufacturers approved several multi-dealership transactions and real-estate prices rose to pre-recession levels.
Key findings include record high valuations, partially driven by attractive acquisition financing and the increased importance and price of dealership real estate.
The first half of 2015 was marked by Warren Buffett’s Berkshire Hathaway acquiring the Van Tuyl dealership group, auto retailing’s single-largest acquisition. The 95-store network is No. 6 on the WardsAuto Megadealer 100 list.
The Berkshire-Van Tuyl deal stirred interest from new non-traditional buyers. In 2015, non-traditional entrants ended up buying more dealerships than did publicly traded companies. Traditionally, the latter have been the biggest buyers.
"A number of iconic multi-dealership groups came to market in 2015 and were acquired by both established consolidators and new entrants," said Erin Kerrigan, Kerrigan Advisor’s managing director.
"Faced with this stiffer competition, the publics found it more difficult to compete for larger group transactions, and represented just 7 percent of the buy/sell market in 2015," she said.
Rookie dealership buyers, including family companies, private-equity firms and public conglomerates, acquired 29 percent of the franchises sold.
That’s "stunning" and indicative of what’s to come, Kerrigan said. "We believe new entrants will increasingly shape dealership consolidation and meaningfully impact the future of auto retail."
Still, the buy-sell activity of 2015 will be hard to top this year, she said, citing a predicted cyclical easing up of the auto industry. 
"While the 2016 buy-sell market is expected to be as active as 2015, we anticipate the proportion of sellers completing a successful sale could decline as industry growth plateaus and dealership earnings come under pressure."
Other report highlights include:
 
• The new entrants continue to seek platform acquisitions.
• Return on investment drives valuations, particularly for larger transactions.
• Blue-sky multiples are firmer and less dependent on profit potential.
• Stock prices drive the public dealerships’ capital allocation.
 
 

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