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Kerrigan Advisors: Dealership M&A Activity Down in 2016

November 22, 2016

IRVINE, Calif. — Dealership M&A activity declined by 7% in the first nine months of 2016 compared to a year ago, according to The Blue Sky Report by Kerrigan Advisors. Dealership Buy/sell transactions completed in the first nine months of this year amounted to 172, compared to the 184 transactions completed during the year-ago period.

Much of this year’s decline in M&A activity can be attributed to a slight decline in buy/sell activity during the second and third quarter, the firm stated. It noted that acquisition activity is not likely to increase in the last two months of 2016.     

“Buy/Sell activity remains strong, but with the expectation of a tax reduction from the Trump Administration, fourth quarter activity could decline as sellers hope for a more favorable tax rate on their sales proceeds in 2017,” said Erin Kerrigan, managing director of Kerrigan Advisors. 

Overall, premium pricing declined in the first nine months of the year, but buy/sell activity remained strong with a 32% increase in the number of multi-dealership groups selling in the first nine months of 2016, according to the company.

Looking at 2017, the firm identified three key trends that will play a vital part in the automotive dealership industry. According to the firm, auto retail’s hedged business model will sustain dealership profitability; economies of scale and scope will drive consolidation; and foreign interest in the U.S. auto retail space will rise.

“A trend we are watching closely for 2017 is the entry of foreign investors into the market,” Kerrigan said.  “Because international companies are attracted to the franchise protections afforded to US auto dealerships and are seeking geographic diversification beyond their borders, we expect foreign investors to make their mark on 2017 with at least one or two completing sizable acquisitions.” 

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