FT. LAUDERDALE, Fla. — Auto dealers are enjoying some of the best operating conditions in over a decade, according to a report released this week by Haig Partners.
The Blue Sky Report found that record profits from higher new-vehicle sales and improving fixed operations, combined with a stable economy, are creating a robust buy-sell market for both public and private dealer groups looking to acquire additional franchises.
“The number and value of deals accelerated in the first quarter,” said Alan Haig, president of the firm. “Private dealer groups made 56 acquisitions in all of 2013, but 42 through May of this year alone. Public retailers tripled their activity in the quarter from a year ago, and unlike in recent years, no major acquisitions were made in foreign markets.”
Haig Partners, which advises dealers on the dealership sales process, is paying close attention to the significant recalls of General Motors vehicles. So far, the firm sees no ill-effects on buyers’ interest in GM dealerships. “While GM will be incurring extraordinary costs for the recalls, GM dealers stand to benefit from customers bringing vehicles in for repairs and trading in recalled cars for newer models,” Haig said. “It’s early to call it a nonevent, yet GM’s market share is stable, new-unit sales are increasing, and its stock price is up from a year ago. We’re currently representing the seller of a very profitable GM dealership and we believe it will trade for a franchise-record price.”
The acquisition of the DCH Auto Group by Lithia Motors for more than $363 million confirms Haig Partners’ expectation that buyers would begin to pursue acquisitions of high value dealership groups, as discussed in its 2013 Blue Sky Report.
“No one’s shying away from very large transactions,” Haig said. “There’s no better use of capital than other investment opportunities, and lenders are more than willing to finance deals. As the buy-sell market began to recover from the doldrums of the recession, there was a concern that sellers had unrealistic valuations for their businesses. But many dealerships have grown into these valuations, so we are seeing buyers and sellers reach agreement on prices.”
The firm’s Blue Sky Multiples were unchanged from its year-end Blue Sky Report. Haig said that some adjustments would likely be made based on mid-year data.
To read the full report, click here.