As Haig Partners describes in its Q3 report, this has been a very strong market for buying and selling franchised dealerships. Private buyers aren’t getting as much attention as Berkshire Hathaway and the Lithia acquisition of DCH for over $600 million in late 2014. Haig Partners thinks the auto industry may be entering a mid-cycle mergers and acquisitions (M&A) market where the publicly traded dealers are acquiring dealerships valued at $750 million to $1 billion per year; but private buyers have been the biggest driver for dealership acquisitions this year.
Here are few interesting facts from Wall Street Journal coverage of the dealer M&A trend:
- A total of 456 dealerships have been acquired thus far in 2015, a 40% increase over the prior year, according to The Banks Report.
- About 10% of the acquisitions this year were generated by large publicly-traded dealer groups.
- AutoNation Inc. bought more than 30 dealerships expected to generate $1.7 billion in revenue. CEO Mike Jackson said acquisitions will continue for AutoNation as a way to leverage the company’s scale.
- Smaller, private dealer groups have been making their own share of acquisitions.
- Mark McLarty, founder of McLarty Automotive Group in Little Rock, bought 15 stores this year bringing the total number of stores he operates to 20. Established dealers sold their businesses to McLarty while valuations have been high.
- One challenge for franchised dealers has been OEMs demanding hefty new investments in dealer facilities. Mercedes-Benz USA, for example, is requiring its dealers to invest about $200,000 to expand their showrooms.
- Erin Kerrigan, founder of Kerrigan Advisors, expects a new record for dealership mergers and acquisitions in 2016 because of the large number of dealership groups expected to go on the block. Kerrigan reported that the value of dealers with at least three stores increased 10% this year from 2014 to an average of about $40 million. Many sellers are choosing to go to market, Kerrigan said.