Buy-sells are strong, but what's ahead?

Expect dealership buy-sell activity to taper off this year, a report says. Or not, says another.

Buyers are still paying high prices for certain brands and sellers are still coming to market, but buy-sell activity is slowing after three years of growth, said the Haig Report for the first quarter from Haig Partners, a dealership buy-sell advisory firm in Fort Lauderdale, Fla.

"The buy-sell market remains robust, although it may begin to level off in 2015 from the rapid growth of the past few years," Alan Haig, president of Haig Partners, wrote.

In contrast, the Blue Sky Report from buy-sell advisory firm Kerrigan Advisors in Irvine, Calif., indicated continued buy-sell growth this year, with a caveat.

"It is continuing to grow and will likely increase significantly, if more large groups come to market," Erin Kerrigan, managing director of Kerrigan Advisors, wrote in email to Automotive News.

Both reports noted that the quarter's buy-sell numbers were skewed by Berkshire Hathaway Inc.'s massive purchase of Van Tuyl Group. For instance, that deal involved 116 franchises, or 60 percent of the franchises that changed hands in the quarter, Kerrigan wrote, citing data from the Banks Report, which tallies buy-sells. 

Haig wrote the value of acquisitions in the U.S. by the six public auto retail groups declined about 30 percent to $106 million in the first quarter vs. a year earlier. 

"Although it is early in the year, we would be surprised if 2015 matches the deal value we saw from those six retailers in 2014, as last year included two large deals that totaled about $850 million," Haig wrote. 

In 2014, the six public groups spent $1.5 billion, Haig wrote. This year, the total could end up at $750 million to $1 billion. 

The number of stores bought by privately owned dealership groups rose 3 percent to 87 in the first four months vs. a year ago, Haig's report said, also citing the Banks Report.

"This level of private acquisition activity is high compared to previous years, but also indicated that the market is beginning to level off from the growth we've seen recently," Haig wrote. 

He wrote that the number of dealerships bought by public groups was essentially flat -- but only because his report excluded the Berkshire Hathaway-Van Tuyl blockbuster. Nate Klebacha, a partner at Haig Partners, said the report omitted that deal because it is unclear whether publicly traded Berkshire Hathaway will report details of future dealership acquisitions as the publicly traded dealership groups do. In essence, Haig Partners doesn't yet know whether Berkshire Hathaway Automotive will be a recurring part of its publicly traded dealership groups' buy-sell tally, and didn't want to include a one-off event. 

Blue-sky values for brands were unchanged from three months ago, Haig wrote. 

Kerrigan's report noted two changes. It raised the value on Subaru to 5.5 times earnings on the high end, up from 5. She credited the brand's strong sales for the lift. But she reduced the upper-end blue-sky multiple for Volkswagen to 3.5 from 4 to reflect the brand's poor performance and expected increase in franchise count. 

Blue sky is the intangible value of a dealership, expressed as a multiple of adjusted pretax profit, and can vary enormously based on a dealership's location and other factors.