■ Dealer M&A heats up in Q3 despite profitability slide!

By Dealership Guy

■ While M&A activity slowed from 2023, Q3 acquisitions were higher than during the summer in the US Market.

Retail auto mergers and acquisitions (M&A) activity picked up from earlier in the year, even as dealership profitability continued to fall from pandemic-era highs.

■ Driving the news: Dealership buy-sells are lower compared to 2023 levels, but trends point to 2024 being the fourth-busiest year for M&A in history, according to Haig Partners' quarterly report.

• Ninty-two rooftops traded hands in Q3, a 10% increase from the previous quarter. On a year-to-date basis, M&A activity is down by 13% from 2023, with 389 stores being sold so far in 2024 compared to 448 at this point last year.
• Public companies have quietly put acquisitions on the back burner, shifting focus to improving efficiency at their current dealerships. Nearly all (96%) of M&A activity this last quarter was driven by private firms, with publics acquiring only four rooftops.

■ Zooming in: Blue sky values (the value of a dealership as determined through its assets and earnings) have been on the decline, but certain brands are showing strength.

• The average estimated blue sky value of a publicly-owned franchised dealership in Q3 was $21.3 million, down 12% from 2023 when values were at an all-time high.
• Most of this decline has been driven by specific brands, like Nissan and Stellantis. Meanwhile, dealerships under the Toyota and Honda franchises continue to see roughly the same values they saw last year.
• Mazda has seen a sharp improvement in blue sky values thanks to the admirable performance of the brand since before the COVID-19 pandemic. With sales up 25% year-over-year and average throughput up 55% since 2019, Haig Partners has boosted the franchise’s blue sky multiple to 3.5-4.5x’s earnings, putting the brand on par with Ford and Chevrolet.

“In addition to happier consumers, dealers appreciate that Mazda is taking actions to increase profits per dealership. For instance, Mazda decreased the number of Mazda dealerships 570 in 2019 to 542 today. Higher sales through fewer locations means that the average Mazda store saw its unit sales increase by 55% from 2019 through this year, more than any other brand. We like this formula!”

Alan Haig, President and Founder of Haig Partners

Looking ahead: Dealership profitability continued to normalize in Q3, falling 28% year-over-year and 7% from the previous quarter. However, retailers are seeing stability in key areas, signaling strength in the long term.

• New vehicle gross profits ($3,173 per unit) dropped the most in Q3, with an overall decline of 5.4% compared to the previous quarter. While overall front-end profits are still up 30% compared to pre-pandemic averages, some brands, such as Stellantis, have reverted to 2019 levels of profitability.
• On the other hand, used vehicle gross profits have stabilized, with dealers earning an average of $1,566 per unit. While F&I profits are flat compared to previous years, fixed-ops profits continue to see strong growth, jumping 4.2% from 2023 on a year-to-date basis.

■ Bottom line: Overall, the M&A market is showing signs of strength, especially for certain brands. Dealers are also in a good place, preparing for a normalized market in the months ahead even as they continue to earn more than they were before the pandemic.

Source: Dealership Guy

#Automotive #Dealership #Dealergroup #Mergers #Aquisitions