The auto dealership buy/sell market rose to another record high, with 330 dealership transactions completed in the nine months ended September 30, 2024, representing 544 franchises sold, according to the just-released Third Quarter 2024 Blue Sky Report by Kerrigan Advisors. Up 93% compared to 2019, this market velocity was fueled by more sellers entering the market, as stronger franchises took advantage of historically high blue sky values, while weaker franchises were divested.

“The buy/sell market remained robust in the third quarter, hitting new records as the largest buyers leveraged their strong balance sheets and solid banking relationships to add further scale to their enterprise. At the same time, more sellers entered the market positioned to sell their businesses given the wealth they accumulated since the pandemic and historically high after-tax proceeds expected from a sale,” said Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. “Clearly, 2024 is on track to be another peak year for the buy/sell market as the positive outlook for the industry is underscored by the performance of The Kerrigan Index which, through November 7^th, was up 54% from its 2022 low, and just 17% below its all-time high.”

Of note in the report is the increased market share for the Top 150 U.S. Dealership Groups reaching 30% of total industry revenue in 2023, up 5% in just five years. At this growth rate, Kerrigan Advisors projects the largest groups will represent the majority of industry revenue by 2043. The accelerating market share growth is due to the largest group’s preference for higher-volume dealerships. Since 2021, the average dealership revenue for the Top 150 Dealership Groups has risen 7% to over $83 million, 16% higher than the industry average, which has stalled at $71 million since 2021.

“If the consolidation rate continues, the Top 150 U.S. Dealership Groups, which now represent nearly one third of total industry revenue, could account for 50% or more of industry sales in the next 20 years, potentially a tipping point for an acceleration in consolidation in the following decades,” continued Erin Kerrigan. “Major consolidators recognize the tremendous growth potential of an increasing supply of dealerships for sale and are optimistic about their ability to pursue accretive acquisitions, supported by their rising stock prices, long standing banking relationships and the industry’s moderating blue sky values.”

A key factor driving record increased buy/sell activity is the stabilization of pre-tax earnings to a ‘new normal’ allowing buyers and sellers greater comfort to use current earnings as a basis for valuations. This improved clarity enhances buy/sell activity as sellers’ and buyers’ pricing expectations are increasingly aligned. Additionally, more sellers are coming to market as the wealth many of them accumulated during the pandemic enables and, in some cases, accelerates their retirement plans.

“Between 2020 and 2024, Kerrigan Advisors estimates the industry amassed three times the profits achieved in the four years before the pandemic, estimated at $278 billion,” said Ryan Kerrigan, managing                         director of Kerrigan Advisors. “Burgeoning capital accounts combined with high blue sky values are prompting more dealers, particularly those without a succession plan, to sell their business. This is particularly the case as the next generation considers the responsibility of growing their family business or considering an exit, knowing that inertia is not an option in the rapidly evolving auto retail market.”

While the stronger franchises, such as Toyota, are coming to market to capture historically high values, another trend fueling the rise in sellers is an increase in the number of dealer groups divesting their weaker franchises, reflected in the fact that, year-to-date, the publics divested 36 franchises, a 24% increase from 2023.