Private Auto Dealership M&A Falls 18% While Public Acquisition Value Jumps 62% According to Q3 2017 Edition of The Haig Report Released by Haig Partners
FT. LAUDERDALE, Fla., Nov. 28, 2017 -- As published in the Q3 2017 edition of The Haig Report released today by Haig Partners, the number of dealerships that sold in the US through the first nine months of the year has declined 18% from the same period in 2016, from 278 to 228.1 Despite the decline in rooftops purchased by the public companies during this period, they ended up spending significantly more money. For the year to date ended September 30, 2017, the publicly traded retailers had spent $935M on auto dealerships in the US, an increase of 62% from the $578M spent in the same period in 2016. Lithia was the most active of the publicly traded companies and continues to target underperforming large platforms in different parts of the US. Despite all the noise regarding the potential negative impact on auto dealerships from ride sharing, electrification, autonomous vehicles and changes to the franchise system, the "smart money" is still buying dealerships.
Profits at privately owned dealerships for the twelve months ended September 30, 2017 were 3.8% lower than year end 2016 due to rising costs. Values of privately owned dealerships fell 3.2% during this period, according to the Haig Report. Haig Partners' franchise blue sky multiples were mostly unchanged in Q3 , with increased valuations for Subaru and Volkswagen only.
Continuing the trend from 2016, demand for dealerships shifted from luxury brands to domestic brands that are heavier in trucks and SUVs. Luxury dealerships accounted for 14% of acquisitions through Q3 2017, down from 17% through Q3 2016, and purchases of domestic stores increased to 50% through Q3 2017 from 46% through Q3 2016.
The Haig Report tracks developments in auto retail and how they impact dealership values. It includes data and analysis on the performance of auto dealerships, identifies noteworthy events to the industry, discusses trends in the M&A market for dealerships, gives guidance on estimated range of values for different franchises, and provides an outlook for the M&A market in 2017. The Haig Report 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.
Other key findings from the Q3 2017 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 car pricing, incentive spending by the OEMs, and rising inventories are growing less favorable to dealers.
- Fleet sales have fallen fell by 8.3% through October, although retail sales are almost flat from the same period in 2016.
- 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 leading to earnings declines at many public and private dealers.
- The average dealership pre-tax profit over the last 12 months was $1.411M.2
- Average estimated blue sky value per dealership dipped 3.2% from the end of 2016 to $6.8M.
- Potential threats from autonomous cars, ride sharing, electrification, changes to franchise laws are so far having minimal to no impact on dealership values.
- Public auto retailers are spending more of their capital on acquiring auto dealerships in the US than last year.
- Private equity firms and family offices continue to make substantial investments in auto retail.
Alan Haig, President of Haig Partners, said, "As we expected, the sharp drop in the first quarter of the year has been offset by strong second and third quarters 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. 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."
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. They have closed dealership transactions with a value of over $3.6B over the past 20 years, so they have unique insights into market conditions and how they impact dealership values.
The Haig Report is published each quarter and is a valued source of information to many in the auto industry who look to it for its comprehensive data, analyses and opinions about the auto retail industry. Included in each edition are Haig Partners' blue sky multiples that serve as a gauge for franchise values. To download the report, please click here.
About Haig Partners
Haig Partners is the leading buy-sell advisory firm for owners of higher value dealerships and dealership groups. Its team of five advisors has been involved in the purchase or sale of over 270 dealerships since 1996 for a total value of over $3.6 billion (excluding inventories), more than any other team in the industry. Its team combines the expertise gained from its years in investment banking and senior positions at AutoNation, Asbury and Bank of America to provide advice and lead sales processes that are carefully tailored to maximize price while satisfying other client objectives like maintaining confidentiality.
Alan Haig, the founder, has been involved in auto retail since 1996 when he wrote the original business plan for the new car division at AutoNation and then went on to lead its acquisition department. Alan and the team at Haig Partners are well recognized experts in auto retail and the buy-sell market and are frequent speakers at leading industry events such as NADA/ATD, Automotive News Retail Forum, American Institute of CPAs (AICPA), National Association of Dealer Counsel, AutoTeam America Buy-Sell Summit, American Financial Services Association, Bank of America Merrill Lynch Dealer Day, and others.
Contact:
Alan Haig
954-646-8921
alan@haigpartners.com
1 Data from The Banks Report and Haig Partners.
2 Data from NADA.
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