A day after Kerrigan Advisors shared its latest report about dealership buy/sell activity, Haig Partners released its own analysis on this topic on Tuesday, explaining how action ramped up in the second quarter after getting a bit of a slow start at the beginning of the year.
The Haig Report indicated the number of dealerships sold in the U.S. during the second quarter increased to 66 rooftops from 62 rooftops during the same timeframe last year.
Year to date, Haig Partners calculated the number of dealerships sold in the U.S. has declined 17 percent from the same period in 2016, from 175 to 146, due to a particularly weak period of dealership sales in Q1.
While the total number of rooftops trading hands declined during this period, the firm insisted the amount of money spent by the publicly traded retailers on dealerships in the U.S. has increased sharply in 2017.
Through June 30, the report noted the publicly traded retailers had spent $538 million on U.S. dealerships, an increase of 91 percent from the $282 million spent in the same period in 2016.
Lithia Motors was the most active of the publicly traded companies and continues to target underperforming large platforms in different parts of the U.S.
The report also highlighted profits at privately owned dealerships for the 12-month span that ended June 30 softened by 2.1 percent versus a year earlier to rising costs.
Values of privately owned dealerships also fell 2.1 percent during this period, according to the Haig Report. Haig Partners’ franchise blue sky multiples were unchanged in Q2 from Q1.
Continuing the trend from 2016, the firm mentioned demand for dealerships shifted from luxury brands to mainline import and domestic brands that are heavier in trucks and SUVs. Purchases of luxury dealerships comprised 13.7 percent of transactions in Q2, down from 16.6 percent in Q2 2016.
Other key findings from the latest Haig Report include:
—Macroeconomic indicators such as GDP, interest rates, employment, number of miles driven and consumer sentiment remain highly favorable for dealers.
—Other trends such as used-vehicle pricing, incentive spending by the OEMs and rising inventories are growing less favorable to dealers.
—Total sales, including fleet, fell by 2.9 percent through July, although recent months have been steady. Average retail SAAR is down 1 percent so far this year.
—Declines in new and used gross profits per vehicle are being offset by gains in F&I and fixed operations.
—Sales and gross profits continue to increase at dealerships, but expenses are rising faster.
—The average dealership pre-tax profit over the last 12 months was $1.436 million
—Average estimated blue sky value per dealership dipped 2.1 percent from the end of 2016 to $6.91 million.
—Public auto retailers are spending more of their capital on acquiring auto dealerships in the U.S. than last year.
—Private equity firms and family offices continue to make substantial investments in auto retail.
—Acquisitions of dealerships, even in declining periods, can still provide a better return on investment than other assets classes.
Haig Partners president Alan Haig said, “As we expected, the sharp drop in the first quarter of the year has been offset by a strong Q2 and we are expecting robust conditions for the rest of the year. There are many buyers and sellers in the market and deal financing remains readily available.
“These are good conditions for buy-sells, so long as sellers understand that their leverage is more limited than in the past,” Haig continued. “Buyers have many options and are increasingly concerned about future profits. They are less likely to chase deals or pay big premiums.
“If dealers want to sell their dealerships they will likely need to accept today's offer since tomorrow’s offer could be lower,” he went on to say.
Haig Partners is seeing these conditions in its current engagements that include domestic, import and luxury dealerships that range from Florida to New York to California. The firm has closed dealership transactions with a value of over $3.6B over the past 20 years.
The Haig Report is published each quarter and is based on data gathered from many public sources, as well as interviews with leading dealer groups, and bankers, lawyers and accountants who specialize in auto retail. Included in each edition are Haig Partners’ blue sky multiples that serve as a gauge for franchise values.
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