The Presidio Group LLC, through its subsidiary Presidio Merchant Partners LLC, released on Aug. 31 its Automotive Retail M&A Update for mid-year 2011. The report notes that public company acquisitions through July were 92% higher than in all of 2010.
Some highlights of Presidio’s update include:
- Buyers remain most interested in the Big 5 dealerships (Toyota, Honda, Lexus, BMW and Mercedes Benz), though Korean and domestic dealerships are becoming more attractive, as is Audi. The supply and market share challenges facing the Japanese manufacturers should dissipate by year end; these manufacturers are expected to offer attractive incentives and products to restore sales to normalized levels late this year.
- Presidio believes the industry is in the early stages of at least a five-year up-cycle, and anticipates continued high levels of activity for several years, absent a double-dip recession. On an annualized basis, 2011 may see merger and acquisition (M&A) activity by public automotive retailers exceed $750 million, impressive though still below the 2006 high of more than $1 billion.
- M&A activity for auto dealerships is up sharply in 2011. Public retailers completed $411 million in acquisitions through the end of July (according to corporate SEC filings), a 92% increase over commitments made in all of 2010. Private buyers are also active though terms of their purchases of dealerships and dealership groups are not reported.
- The increase is attributable to a number of factors. The market was virtually frozen for three years, with just $28 million worth of acquisitions by public retailers in 2009 (according to SEC filings). Many dealers were awaiting more favorable conditions to exit their businesses. Strong unit sales, fewer marginal dealerships, lower operating costs and record dealership profitability are making acquisitions more attractive for both public and private buyers. Stabilized real estate values and low interest rates also are contributing to the rebound in M&A activity.
“The M&A market for auto dealerships has rebounded strongly this year, after its virtual freeze of 2008-10,” said Alan Haig, managing director and co-head of Presidio’s automotive retail services group. “During the recession, most public companies and large private buyers shied away from acquisitions, and the few offers that were made were unattractive to sellers. Today, the perceived valuations of buyers and sellers are closer, so we’re seeing significant activity because of pent-up interests, as well as a dramatic improvement in dealer profitability.”