Strong buy-sell activity predicted — if tariffs don't interfere

With one buy-sell adviser as busy as he can remember and more sellers bringing their stores to market, dealership buy-sell advisers are expecting robust sales the remainder of 2019. But if more tariffs are implemented, they could put a wrinkle in dealership pricing and purchase volume, one adviser said.

The first quarter included 54 buy-sell transactions, which can include multiple stores, up by one-third from the same period a year ago when 39 were tallied, according to the Blue Sky Report published by Kerrigan Advisors, a sell-side firm in Irvine, Calif.

The Haig Report published by Haig Partners, a buy-sell advisory firm in Fort Lauderdale, Fla., estimated 83 dealerships changed hands during the first quarter, a dip of six from the year-ago period. Transactions by private dealership groups jumped 15 percent to 79 during the quarter, according to the Haig Report, while transactions among public dealership groups dwindled.

Haig said overall buy-sell activity remains strong. Three of Haig's dealership clients accepted sale offers in the past few weeks, he said.

"We're still seeing a lot of demand for higher-quality franchises at strong pricing," he told Automotive News.

Tim Lamb, president of Tim Lamb Group in Columbus, Ohio, said he's the busiest he has been in 13 years.

"There's going to be an unprecedented number of dealerships on the market," he said. "We're just seeing a tremendous amount of activity."

Sellers include dealers who are looking to exit the business and operators who want to sell a store that hasn't worked for them, he said. Lamb said his firm has 25 dealerships with either a signed purchase agreement or are close to it, 10 stores with interest and 60 dealerships that are hitting the market or preparing to.

Absent a big shock to auto retail, such as tariffs, Haig expects the buy-sell market will be busy for the rest of 2019.

President Donald Trump has threatened tariffs on Mexico, and tariff concern is still on the minds of some buyers, said Erin Kerrigan, managing director of Kerrigan Advisors.

"If we see a significant tariff on imported autos, we will see a significant decrease in the value of the franchises that are impacted by the tariffs" even for strong and in-demand import brands such as Toyota and Lexus, she said.

Kerrigan said she expects industry consolidation to continue as transactions remain robust, with many sellers thinking now is the time to sell before the market shifts to more of a buyers' market.

"Buyers and sellers are seeing eye to eye, and a lot of transactions are getting done," she said.

Both Haig and Kerrigan noted that for sellers with stores of weaker brands, finding buyers has become more difficult. Haig noted a pullback in demand for domestic brands such as Ford and Chevrolet, but he and Kerrigan said demand for luxury stores remains high.

"Buyers have become more selective than in years past, so dealerships will need to be priced fairly and marketed well, or they may sit with no offers," Haig wrote in his report.

For the six public auto retailers, the market was quiet in the first quarter. Their spending on acquisitions of dealerships fell to the slowest pace since 2010, according to Haig's report. They bought four dealerships in the first three months of 2019, compared with 21 a year earlier, and their spending fell 70 percent, according to Haig's report.

During the quarter, Asbury Automotive Group, the nation's seventh-largest dealership group, bought the four-store Bill Estes Automotive in Indianapolis for $121 million, the Duluth, Ga., company said in a regulatory filing.

After the first quarter closed, at least one public company began acquiring stores.

Last week, Lithia Motors Inc. of Medford, Ore., said it purchased Freedom Ford-Lincoln of Morgantown, W.Va., from Michael Wood and renamed it Ford-Lincoln of Morgantown. The purchase price wasn't disclosed.

In May, Lithia, the nation's third-largest dealership group, also bought Hamilton Honda in Hamilton Township, N.J., for an undisclosed amount from auto industry veteran Michael Saporito and former NFL linebacker Jessie Armstead.

Haig said the publics' large absence from the buy side of the market is related to their stock prices. Because they have generally increased over the past six months, he expects more companies will look to buy stores, instead of shares.

Kerrigan said that while some of the publics likely will be in the market to buy stores this year, including Lithia, Asbury and Group 1 Automotive, she anticipates they will continue to sell more dealerships than they buy. The publics sold three times the stores they purchased in the first quarter, according to Haig and Kerrigan's reports.