What’s Been Behind Dealer M&A Trend During 2015

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.
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