Dealers exit stores in record numbers during Q1

Dealerships are selling at break-neck speeds in 2024, with buy-sell transactions setting a new record during the first quarter.

The market landscape

• The number of dealerships sold in Q1 totaled 109, accounting for more than 230 franchises, according to buy-sell advisory firm Kerrigan Advisors. This represents a jump of 38% compared to the same time last year.

• Although demand for dealerships is high, this year’s increase in transactions was driven by a larger number of owners putting their store up for sale. With more supply but stable demand, the mergers-and-acquisitions market has thus become more buyer-friendly in 2024.

• Further sweetening the deal for buyers is the decline in dealership valuations, which shed an average of 7% quarter-over-quarter. This has made stores cheaper to purchase.

• At the same time, dealerships still cost more on average than they did before the pandemic; a lot more, in fact. Haig Partners reported earlier this year that store valuations are still near record highs, making this a great market for sellers as well.

Why are so many dealers leaving the business?

• One the one hand, many buyers are willing to pay the big price tags sellers are asking for. Dealerships have proven to be resilient and profitable businesses over the last four years, attracting investors with deep pockets. As long as buyers are willing to pay more, the more dealers will consider selling, says Haig Partners.

• While dealerships are often owned and operated by multiple generations of the same family, that may be starting to change. There are a lot of challenges facing the car market today. Instead of dealing with these issues, many dealership families would rather take advantage of this year's surge in M&A demand. This allows them to leave the business in the hands of someone more capable while reaping the benefits of a strong valuation.

What happens next? 

• Fixed-ops sales are outperforming new vehicle sales in terms of growth, as dealership service centers continue to enjoy high demand and wide profit margins. Kerrigan Advisors believes retailers with strong fixed-ops businesses will become increasingly attractive to buyers in the years ahead.

• Demand for Toyota and BMW stores remains strong. Solid performance from both brands throughout the year has boosted valuations for their dealerships, along with profit expectations.

• Not all automakers are seeing the same success, however. Stellantis dealerships are seeing lower valuations in 2024, as the company’s U.S. sales continue to decline.

Bottom line: The dealership M&A market is busier than ever. With activity being so high despite widespread challenges with vehicle affordability and interest rates, it will be interesting to see how demand responds once these factors normalize.

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