2023 buy-sell market is steadily abuzz

Empire Automotive Group, which has nearly tripled its dealership count in four years, bought three stores in 2022, and last month the Huntington Station, N.Y., group entered its first new state, buying a New Jersey dealership.

Empire Automotive CEO Michael Brown thinks sliding dealership earnings will create more purchasing possibilities, especially as dealers lacking succession plans or facing pricy construction projects may opt to sell.

"Things like that might make them kind of push to exit, now that things have settled profitability wise," Brown told Automotive News.

And Brown, with an aggressive acquisition mindset, is ready to act in a still humming buy-sell market.

Absent the peak-defining mega-deals of 2021, fewer stores changed hands in 2022 despite an increase in buy-sell transactions.

Automotive News so far this year tracked at least 90 first-quarter transactions involving 127 dealerships, a 9.8 percent increase over the 82 transactions tracked in the first quarter last year when 114 dealerships changed hands. And for the second quarter, Automotive News has tracked at least 93 transactions involving 143 dealerships, though recording deals for those three months continues.

Dealers and brokers who spoke with Automotive News predict a strong finish for buy-sell activity this year.

Kerrigan Advisors, a sell-side firm in Incline Village, Nev., in its first-quarter Blue Sky Report, tracked a record 103 transactions in the quarter, a 43 percent jump from 72 transactions the firm counted for 2022's first quarter.

Managing Director Erin Kerrigan said high dealership earnings in recent years have continued to fuel store acquisition demand.

"Dealers are sitting on three years of cash flow that they never could have imagined," Kerrigan told Automotive News.
And, Kerrigan said, while some of that capital "has been put to work in transaction activity in the last few years, there's still a lot to be spent."

She expects second- quarter transactions will outpace the first quarter and buy-sell activity will remain elevated.

"I project 2023 is a very active year that will rival 2022," Kerrigan said.

Bob Loquercio Auto Group of Streamwood, Ill., helped contribute to the market bustle, adding three dealerships in April. That followed the purchase of two Indiana stores last August.

CEO Bob Loquercio said that though the market and economy feel robust, concerns linger, especially high interest rates that scare away consumers and dealers. "I don't want to carry inventory in an 8 percent environment," Loquercio said.

Still, the auto retailer said he's staying optimistic about the industry's strength and plans to keep expanding his footprint "when opportunities align themselves."

Buy-sell firm Haig Partners of Fort Lauderdale, Fla., in its first-quarter Haig Report, also predicted healthy buy-sell activity through 2023, though likely at lower levels than 2022. The report said the firm is on track to match the 41 dealerships it helped sell in 2022.

"Those that are growth-oriented are still pushing forward pretty aggressively, which is good for sellers, too, because it's holding [dealership] values at a very strong level," said Kevin Nill, managing director of Haig Partners.

Nill said despite some differences in how buyers and sellers are calculating dealership valuations, high-performing stores draw premium prices.

The firm found blue-sky values, the intangible value of a dealership, including goodwill, likely peaked in the first half of 2022.

Nill in June facilitated a transaction that Haig Partners believes is the highest price ever paid for a single store: Morgan Automotive Group's acquisition of Al Hendrickson Toyota from Al Hendrickson Jr.

The Coconut Creek, Fla., store is one of the country's top dealerships for Toyota new-vehicle sales.

Nill and Morgan Automotive CEO Brett Morgan declined to reveal the sale price. Morgan called it a "once-in-many-generations opportunity."

Fresh off 10 acquisitions in 2022, Morgan Automotive added four dealerships this year. Chairman Larry Morgan said same-store sales' performance helps inform growth strategy.

"If they're continuing to improve and creating good earnings, then we're prepared to continue to grow the company," he told Automotive News.

Gary Mull and Brady Schmidt, co-CEOs of buy-sell firm National Business Brokers in Irvine, Calif., expect the robust buy-sell market to continue.

Schmidt said the market pace has sustained, "maybe with a slight check, or some softening of blue-sky values, but not nearly as much as I would have expected in the interest-rate environment that we're experiencing right now."

Mull said increased borrowing costs give "a little kick in the appetites of some buyers."

"People are really doing a much more thorough due diligence job on quality of earnings," Mull said.

One dealership group proceeding with prudence is McLarty Automotive Group of Little Rock, Ark.

"We've been consciously conservative amid the outsized period of profitability, which of course is translated into outsized purchase prices, too," CEO Mark McLarty said.

McLarty Auto acquired two dealerships in 2022 and two Ford stores in May. McLarty said he expects to close on at least one more deal before the end of the year.

After four historic acquisitions by the public auto retailers helped define 2021's buy-sell market, 2022 boasted smaller transactions — for the publics, too.

Activity for the six public groups revved up this year after they bought just 39 stores last year through 19 acquisition transactions.

Automotive News tracked two acquisition transactions by the public groups in the first quarter this year, including AutoNation and Group 1 Automotive each buying one dealership. Lithia and Group 1 each sold a dealership in the quarter.

Automotive News so far has tracked at least five acquisition transactions among the public groups in the second quarter, involving 24 stores changing hands.

Lithia CEO Bryan DeBoer told Automotive News in June that dealership acquisitions would help fuel its updated target of adding $25 billion in annual revenue, part of its plan to grow to $50 billion in annual revenue by the end of 2025.

Lithia in June purchased 14 franchised stores from Dennis Ellmer of Priority Auto Group in Virginia. The Medford, Ore., group also added more than 40 stores in the United Kingdom with its acquisition of Jardine Motors.

AutoNation acquired five stores with its June purchase of Bob Baker Auto Group in California, and Group 1 purchased Beck & Masten Kia in Texas on June 1, shortly after the Houston dealership group purchased three Buick-GMC stores from Beck & Masten.

The publics also sold some stores in the second quarter, with Automotive News counting at least 10 divestiture transactions involving the sale of 11 stores. Lithia has sold at least four stores this year, including three in the second quarter.

Empire's Brown stays hungry for growth. Empire, which also sold a Honda store in late July, aims to close another New Jersey acquisition around September, Brown said.

He credits consistent check-ins with industry associates with helping him stay briefed on acquisition opportunities.

"If you spend the time and work the phone, just like anything else, you'll have a chance at the table," Brown said.