Auto dealership buy/sell activity in the U.S. reached new heights in the first nine months of 2024, with 330 transactions encompassing 544 franchises, according to Kerrigan Advisors' Third Quarter 2024 Blue Sky Report.
This represents a 93% increase compared to 2019, driven by a strong market environment and sellers capitalizing on historically high valuations.
“The buy/sell market remained robust in the third quarter, hitting new records as the largest buyers leveraged their strong balance sheets and solid banking relationships to add further scale,” said Erin Kerrigan, founder and managing director of Kerrigan Advisors. “2024 is on track to be another peak year for the buy/sell market.”
Key Drivers of Growth
Several factors contributed to the surge in activity:
Increased Seller Participation: Many sellers have entered the market to capture high blue sky values, often influenced by accumulated wealth from pandemic-era profits.
Consolidation Trends: Larger dealership groups are leveraging their financial strength to expand, increasing their market share to 32% of buy/sell transactions -- marking a 66% growth since 2018.
Market Stabilization: Pre-tax earnings have normalized, aligning buyer and seller expectations, and fostering transaction growth.
Kerrigan Advisors said the Top 150 dealership groups now account for 30% of total industry revenue, up 5% in five years. This consolidation is expected to accelerate, with projections that these groups will represent the majority of revenue by 2043.
Notable Trends
The report identified several significant trends shaping the market:
Luxury Franchises in Demand: Brands like Lexus and Jaguar Land Rover (JLR) are commanding higher blue sky multiples due to strong profitability and high buyer interest. Lexus multiples have risen to 8.0x-9.5x, while JLR’s increased to 7.0x-8.0x.
Divestment of Weaker Franchises: Public groups have divested 36 franchises year-to-date, a 24% increase from 2023, often targeting underperforming brands like CDJR and Nissan.
Geographic Focus: Buyers are concentrating on local and regional consolidation, aiming to maximize efficiency and synergies.
Market Challenges
Despite the growth, challenges persist. Blue sky valuations for underperforming franchises have fallen below pre-pandemic levels. Additionally, luxury dealers face mounting pressures from rising rents -- up 32% since 2019 -- and costly facility upgrades.
“Luxury brands like Lexus and JLR increasingly command higher multiples as they deliver higher profits,” said Ryan Kerrigan, managing director of Kerrigan Advisors. “On the other hand, buyers evaluating underperforming dealerships apply lower-end multiples, reflecting their higher risks.”
Looking Ahead
As 2024 progresses, the auto retail industry continues to navigate a dynamic market environment. Consolidation trends, evolving buyer strategies and shifts in franchise valuations suggest an industry in transition. Kerrigan Advisors projects large dealership groups will play an increasingly dominant role in shaping the market’s future.
