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M&A Activity for Dealerships Falls in 2016

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March 27, 2017—The number of auto dealerships sold in the U.S. declined 6.5 percent from the peak levels reached in 2015, according to data published in the 2016 Year End edition of the Haig Report released by Haig Partners. 

Demand shifted from luxury and import brands to domestic brands that are heavier in trucks and SUVs. Most franchise values remain unchanged.  Despite a decline in the number of dealerships sold, the number of dealership groups sold increased 17.6 percent as their owners took advantage of market conditions to exit the industry. Demand for dealerships remains strong with public dealer groups, private dealer groups and institutional investors all looking for fairly priced acquisition opportunities. Dealership buy-sell activity should be robust in 2017, according to the report.

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. 

Key findings from the 2016 Year End Haig Report include:

  • 357 dealerships sold in 2016, down 6.5 percent from 2015.
  • Public company spending on US auto dealerships fell 14.5 percent from 2015 as they spent more of their capital on stock buy-backs, European auto dealerships and truck dealerships/leasing.
  • Sales of dealership groups increased 17.6 percent from 51 groups in 2015 to 60 groups in 2016 as owners took advantage of conditions to exit near all time high valuations.
  • Twenty-one percent fewer luxury dealerships sold, 25 percent fewer midline import dealerships sold, while sales of domestic dealerships increased 31 percent , as compared to 2015.
  • Macroeconomic indicators such as GDP, interest rates, employment, number of miles driven, gas prices and consumer sentiment are all highly favorable for dealers at the moment.
  • Other trends such as used car pricing, incentive spending by the OEMs, and loan losses are growing less favorable to dealers.
  • Average profits per dealership fell 2.4 percent compared to 2015 to $1.467M per dealership.
  • Private equity firms and family offices are increasingly active and making substantial investments in auto retail.

"Despite the small contraction in 2016, we expect 2017 will be another strong year for dealership buy-sell activity," said Alan Haig, president of Haig Partners. "There remain many buyers looking for dealerships, financing is still readily available, and more sellers are realizing that if they want to sell their dealerships before the next recession they will likely need to accept today's offer since tomorrow's offer could be lower."

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