Dealership Merger&Acquisitions Market Saw Record High Transactions!

Sellers are capitalizing on robust blue sky values to make strategic exits, while buyers are looking for high-quality, low-risk franchises.

When discussing the future of automotive retail, there is an increasing tendency to market concentration regarding the mid-to-long-term impacts of business models driven by M&A.

Autobodynews contributed to this report.

The auto dealership buy/sell market reached an all-time high in the first half of 2024, with transactions nearly doubling compared to pre-pandemic figures. Sellers took advantage of strong blue sky values to make strategic exits.

Erin Kerrigan, founder and managing director of Kerrigan Advisors, stated, "The 2024 buy/sell market remains strong, hitting new records as industry consolidation continues despite high interest rates." According to Kerrigan Advisors' latest Blue Sky Report, the market saw 204 dealership transactions, representing 381 franchises in just six months, annualizing at an unprecedented 760+ franchises.

This increased activity is largely driven by more sellers coming to market to take advantage of historically strong blue sky values, which remain significantly above pre-pandemic levels. On average, blue sky values for most franchises are up by 74%, despite a 17% drop from their peak.

"Dealership sellers view current blue sky prices as highly attractive compared to historical values," Kerrigan added.

However, the industry faces challenges such as lower vehicle affordability and tepid electric vehicle (EV) sales, which have impacted market dynamics. In addition, recent technology and data management challenges, particularly following the CDK cyberattack, have pushed more dealers to consider selling sooner than expected.

The market's strength is supported by well-capitalized buyers, including publics that have accumulated $7.4 billion in available capital, up by $370 million from Q1 2024. These buyers are particularly selective, favoring high-quality, low-risk franchises.

"The significant disparity in the number of days' supply between the top and bottom franchises is dividing the buy/sell market into the haves and have-nots," noted Ryan Kerrigan, managing director of Kerrigan Advisors. This selectivity has led to substantial premiums for top franchises in high-demand markets, while weaker franchises are experiencing declining buyer interest.

Buyer decisions are influenced by shifting original equipment manufacturer (OEM) strategies, particularly regarding EV production. Brands like Toyota and Lexus, which project the lowest level of EV production, remain highly sought after due to perceived lower risk and better market alignment.

Kerrigan Advisors also observed a notable impact of OEMs on the dealership network configuration, at times challenging state franchise laws to shape the network in their favor.

"We have seen some OEMs boldly attempt, but unsuccessfully, to use a Right of First Refusal (ROFR) in states where franchise law explicitly prohibited the tactic," Erin Kerrigan reported. Such maneuvers by OEMs could establish precedents that might redefine dealership ownership and market dynamics.

This change in OEM mindset is a result of Tesla's initial retail success with the direct-to-consumer model and their exclusive ownership of the customer relationship and data. In the Kerrigan Advisors 2024 OEM Survey, 19% of OEMs surveyed plan to exclusively own the customer relationship and data in five years, a 16% increase from 2023, while only 14% expect dealers to maintain sole ownership, a significant departure from historical precedent, when dealers held the customer-facing relationship.

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