IRVINE, Calif. — U.S. dealership buy/sell activity reached a new high in the first three quarters of 2014, soaring to an 89% year-over-year increase, according to the Kerrigan Quarterly Blue Sky Report for third quarter 2014.
According to the report, which covers activity through Oct. 1, 2014, the entry into the market of new players has driven price expectations to record peaks, most notably influenced by Berkshire Hathaway’s acquisition of Van Tuyl, the largest acquisition in the auto industry’s history. The report also noted that the completion of Lithia’s acquisition of DCH has had a significant impact on blue sky valuations.
“These two mega deals have motivated a new wave of sellers to consider entering the market, while also pushing pricing expectations to peak — and likely unsustainable — levels,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “In addition, they are inspiring a new class of capital — private equity and family offices — to acquire dealerships.”
In addition to the continued rise in transaction activity — 148 dealership transactions in the first three quarters of 2014, versus 78 in the same period in 2013 — key findings this quarter include the dramatic increase in private capital seeking to enter the industry, and the projection that 2014 will prove to be the most active buy/sell year in over a decade, with over 200 transactions completed by year’s end.
Furthermore, according to the report, because the capital markets are increasingly facilitating ever larger transactions, the number of multi-dealership acquisitions more than doubled in the first nine months of 2014 versus the same period 2013, and that the financing available for large acquisitions has contributed to the rise in blue sky values.
In conjunction with the release of the report, Kerrigan Advisors also announced that it has launched a new private equity and family office advisory practice to be led by Ryan Kerrigan, who has worked in the private equity sector for over 13 years, including leading transaction origination for a middle-market private equity firm.
“It is not surprising that private capital is seeking financial exposure to auto retail. These investors see a profitable, fragmented industry with tremendous consolidation opportunities,” said Ryan Kerrigan. “They also see attractive exit opportunities in the public markets through a future IPO. Private investors also see opportunity in a changing industry in which online sales, no-haggle pricing, and new forms of car ownership create attractive new business models that are less reliant on expensive human capital.”