Q1 buy-sells tracking on same busy pace as '21

The U.S. dealership buy-sell market so far is tracking at a similar pace to a busy 2021, widely considered the biggest year for store acquisitions in history.

Data compiled by buy-sell experts and Automotive News for this year's first quarter showed that deal-making has largely continued its momentum.

Kerrigan Advisors, a sell-side firm in Incline Village, Nev., estimated in its latest Blue Sky Report that dealership transactions in the first three months of 2022 increased 9.1 percent to 72. Transactions, as counted by Kerrigan Advisors, can be single- or multiple-store deals.

Kerrigan Advisors estimated that 22 multiple-dealership transactions occurred in the first quarter, representing 31 percent of the buy-sell market.

Haig Partners, a buy-sell firm in Fort Lauderdale, Fla., estimated in its latest Haig Report that 86 dealerships sold during the first quarter, down 13 percent from 99 stores sold in the same period in 2021.

Automotive News has tracked 73 transactions in the first quarter, involving the sale of 104 dealerships. Those dealerships represented 179 franchises.

The figures are similar to those tracked by Automotive News for the first quarter of 2021 — 69 transactions involving the sale of 106 dealerships.

If the current buy-sell pace were to continue, "nearly every dealership in the U.S. would trade hands in the next 20 years, leading to fewer single-point dealers and a much higher concentration of vehicle sales amongst the leading consolidators," Kerrigan Advisors said in its report.

According to Kerrigan Advisors, the industry's average blue-sky value — the intangible value of a dealership, including goodwill — reached a record $11.5 million per store in the quarter, passing the previous record of $11 million set in the fourth quarter of 2021 and up 35 percent from the first quarter of 2021, when it was $8.5 million.

"In the first quarter, we saw transaction activity rise, and we saw valuations rise, and we saw profits rise," Erin Kerrigan, managing director at Kerrigan Advisors, told Automotive News. "So it was a trifecta of positive news. That being said, there are some economic concerns on the horizon that make us believe that while earnings will continue to rise this year, we do not think valuations will rise much higher than we're seeing them today."

Alan Haig, president of Haig Partners, pointed to what he described as troubling economic indicators such as high inflation and fuel prices, low consumer sentiment, rising interest rates and declines in the stock market.

"But because of the lack of new-vehicle supply, dealership profits are at record highs," he said. "So what we're seeing on the bottom line for dealers is totally different than some of the other economic indicators would suggest. And historically, auto retail was a leading indicator of the economy. We'd go into a recession first and come out of a recession first. But that relationship has been severed because of the shortage of inventory."

Dealership profitability has muted some angst in the buy-sell market, said Mark Johnson, president of buy-sell firm MD Johnson in Enumclaw, Wash.

"There's more buyers than ever because of the amount of money they've been making," he said. "And it's put them in a great position to acquire stuff."

Deal pace has continued to be brisk in the second quarter. So far Automotive News has tracked 76 transactions for that period involving 106 dealerships.

Publicly owned retailers Sonic Automotive Inc., Lithia Motors Inc., Group 1 Automotive Inc. and Penske Automotive Group Inc. have all made acquisitions in 2022.

"It's going to be another really strong year," Haig said. "There are plenty of dealers that have been making so much money recently. A lot of families have decided, 'Hey, we want to make this our family future. And so we want to get bigger.' And they're using that money to buy more dealerships. I think the public companies, so far, have decided they want to get bigger, too. They don't want to be left on the sidelines."