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- Dealership M&A activity falls in Q2 after record start of the year
Dealership M&A activity falls in Q2 after record start of the year
Dealership mergers and acquisitions (M&A) activity declined over the second quarter, marking a shift from the record-setting January-through-March period.
Driving the news: The Q2 Haig Report tracked a downshift in dealership buy-sell transactions and store values over the course of spring.
Eighty-four dealerships were sold between April and June, representing a 48% decline from Q1 and a year-over-year drop of 41%.
Dealer earnings are also down, falling 35% from Q2 2023. Haig Partners estimates that publicly-owned dealership groups saw an average pre-tax profit of $1 million per store.
Blue sky values (the price for a dealership excluding the value of hard assets, also known as goodwill) are also down 11% from their peak in late 2023, resting at an average of $21.8 million.
Zooming in: While values are down across the board, some interesting new M&A trends are starting to emerge.
Bigger dealership groups are looking to divest from smaller, less profitable stores to focus their efforts on higher-volume locations.
As a byproduct of this divestment, most public dealerships are dialing acquisition efforts, at least for now, leaving Lithia as the only active buyer in the segment.
These two shifts are creating more opportunities for smaller players to participate in the buy-sell market, such as independent retailers and even first-time owners.
Zooming out: Meanwhile, broader themes are becoming more evident in the overall car market, hinting at what the months to come will be like for dealers.
Sales are slowly starting to decline despite the recovery of inventory, falling 0.7% year-over-year in Q2, according to Haig Partners.
However, most analysts expect the Federal Reserve to cut interest rates in an effort to buoy employment. This will have the added benefit of lowering costs for dealers and consumers while boosting demand.
Bottom line: While M&A activity is declining from its peak, dealers are still benefitting from a resilient car market. With normalization in full swing and the possibility of rate cuts in the near future, they also have much to look forward to. That being said, retailers can’t afford to forget the lessons they learned during the pandemic. Hitting the ground running will be essential to continue growing in the market of the future.
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