2022 could be even busier for buy-sells

LAS VEGAS — The dealership buy-sell market, which reached new heights in 2021 as both public and privately owned groups completed a flurry of acquisitions, including several megadeals, could be even busier in 2022.

Key conditions making the market ripe for consolidation — high profits, rising store values and retirement-ready owners, for instance — appear to be sticking around for now, dealership brokers and retail consultants say. And the number of dealership sales completed or negotiated during the first 11 weeks of this year have convinced some of the professionals arranging deals that the best is yet to come.

For Erin Kerrigan, managing director of Kerrigan Advisors, a sell-side firm in Incline Village, Nev., the robust start to the year has buoyed her expectations beyond what she estimated a few months ago.

"If you had asked me in December, I would have expected the buy-sell market to be around the same level as 2021," Kerrigan told Automotive News at the NADA Show here. "But based on the first two months of this year, I think the buy-sell market of '22 will be more active than '21, which I didn't think I would say."

Kerrigan described dealership profits for the first two months of 2022 as "extraordinary," adding that some clients have said their dealerships' earnings for January and February — months traditionally affected by a seasonal slowdown in business — have been some of the best results they've had. That in part has led to her forecast that more dealerships will trade hands this year compared with last year.

Alan Haig, president of Haig Partners, a buy-sell firm in Fort Lauderdale, Fla., said at this point in 2022, his firm is ahead of last year's pace in terms of completed transactions.

"The deals in our pipeline indicate that this is going to be as good a year in terms of the number of rooftops, but even better in terms of the value that our clients are getting for their businesses," Haig said.

And 2021 has been widely considered the busiest dealership acquisition year in history. Automotive News so far has tracked at least 376 transactions in 2021, involving at least 693 dealerships changing hands. In 2021's fourth quarter alone, Automotive News so far has tracked 149 transactions involving at least 316 dealerships.

The deal pace seems off to a strong start this year. Automotive News estimates at least 52 transactions have happened thus far in 2022's first quarter involving at least 78 dealerships.

"2022 is starting out very similar to the way 2021 was," said dealership lawyer Stephen Dietrich, a Denver-based partner with Holland & Knight who does a lot of work on transactions. "It's still very active. Typically, we see some sort of a slowdown in January and February just because people get done with things at the end of the year and they're recovering a little bit."

The beginning of 2022 included what Dietrich called a hangover of deals that didn't get done in 2021. As a result, the typical lull to start the year didn't occur, he said.

"The last probably 16, 17 months have been very, very active," said Dietrich. "And I would expect it to continue through probably at least the end of the calendar year."

In Automotive News' 2022 Dealer Outlook Survey, 1 out every 5 of the 196 dealers and dealership managers who responded said they plan to buy dealerships in 2022. Nearly 5 percent of respondents said they plan to both buy and sell stores in 2022.

Mike Sims, president of Pinnacle Mergers & Acquisitions in Frisco, Texas, said decisions to sell largely have been driven by a group's patriarch or matriarch deciding to retire.

Buyers, meanwhile, have several reasons to acquire, said Sims, who projects they'll continue to be active.

"You still have historically low interest rates, although we certainly see they will be increasing," Sims said. "Credit is readily available to [dealers]. Plus, they're more flush with cash than they probably ever have been. And where else is there better to get a return than in the car business, which [is doing] much better than the stock market or most other investments."

Ken Ganley, CEO of Ganley Auto Group in Brecksville, Ohio, called the buy-sell market hot and said for a dealer who "would even be considering selling, it's the right time."

Ganley Auto on Feb. 16 bought a Kia dealership in Mentor, Ohio, northeast of Cleveland. The group, which ranked No. 14 on Automotive News' most recent list of the top 150 dealership groups based in the U.S., bought two stores in 2021.

"It's certainly more competitive, more expensive," Ganley said. "There's a lot of buyers out there, and there's not a whole lot of sellers right now."

Zeigler Auto Group, which ranked No. 55 on Automotive News' most recent top 150 list, bought five dealerships in 2021. It doesn't have any pending deals signed at the moment, President Aaron Zeigler said. But the Kalamazoo, Mich.-based group continues to seek opportunities that make sense, especially in the Midwest, he said.

"We started in Kalamazoo, went to northern Indiana, got to Chicago and just kind of kept moving up into Wisconsin now," Zeigler said. "Any of those areas we would continue to look at. We eventually want to get into the Florida market, too."

Sheldon Sandler, CEO of Bel Air Partners, a buy-sell advisory firm in Hopewell, N.J., said the potential increase of the long-term capital gains tax rate in 2021 — a proposal by President Joe Biden that didn't end up happening — as well as the impact of the coronavirus pandemic on business, created the brisk buy-sell market last year.

"Obviously, both have been washed away," Sandler said. "But dealers are making record profits. So you have this contest where the sellers want to base their pricing off of the past 18, 20 months, which have been all-time profitability."

But because buyers don't want to set pricing on the zenith of the business, Sandler said, those kind of disconnects must be hashed out.

George Karolis, president of Presidio Group, an investment banking and advisory firm with offices in Denver and Atlanta, said he sees the pace of transactions continuing at the level of 2021. He also noted that pricing disconnects have to be worked out to make deals happen.

"Often times you'll see some sellers try to hit the market with an unrealistic expectation because they either heard a rumor of someone getting something, which probably wasn't true, or they just think, 'Hey, the times are amazing, there's so much activity, I'm going to try to get top multiple on my best earnings ever,' " Karolis said. "Those are the challenges that we see for the buyers out there that sometimes get in the way of deals."

Mark Johnson, president of buy-sell firm MD Johnson in Enumclaw, Wash., noted that some transactions his firm is working on are going for prices buyers weren't willing to pay in the past.

"I'm seeing dealers say yes on stores right now that they've said no to for a number of years [saying] that [they] were overpriced," said Johnson, who also forecasts a strong buy-sell market going forward. "So every time I think I get the market figured out and [think], 'The store will never sell for that,' somebody buys it. Dealers are sitting on a lot of cash, and they want to grow."

Melissa Burden contributed to this report.