Digital Dealer - November 2019 - 11

CHART 2

Average Dealership Fixed Operations Gross Profit
2015-2019 LTM, $ in Millions

Source: NADA

CHART 3

Public Auto Retailers Net Income
First Half 2018 vs. 2019, $ in Millions

Increased buyer demand is
supporting the continuation
of today's blue sky multiples,
despite recession concerns.
In fact, some investors are
interested in auto retail
specifically as an economic
hedge against a recession.
With this in mind, we expect
average blue sky values to
remain strong over the next
two quarters, as industry
profits stabilize and buyer
demand remains high.
PUBLICS' STOCK
PRICE APPRECIATION
PORTENDS FUTURE
ACQUISITIONS

Source: SEC Filings and Kerrigan Advisors Analysis

rates, as well as elevated
spending levels per service
visit, alleviating the concern
that electric vehicles will not
require dealership service.
Likewise, used vehicle sales
are expected to grow as

inventories of late models
rise due to a growing volume
of off-lease vehicles coming
to market.
Growth in dealership profits is also bringing more buyers and investors to market.

After a significant decline
in acquisitions in the first half
of 2019, public auto retailers
are expected to increase
their capital allocation to
U.S. dealership acquisitions in the second half of
2019. This is not surprising
given their strong financial
performance in the first
half (five of the six reported
record earnings in the first
half - see Chart III) and ris-

D I G I TA L D E A L E R . C O M

ing stock prices (see Chart
IV). Year to date through
July 31st, The Kerrigan
Index™ is 589.25 and up an
impressive 37.1 percent on
average (see Chart V). (See
Chart 3 & 4)
Public companies have
a fiduciary responsibility
to seek the most accretive
investments for their companies' capital. For some time,
the pricing of their stock
rendered many dealership
acquisitions dilutive to
earnings and made stock
buybacks more attractive;
however, with the recent rise
in their market capitalizations, and the concomitant
increase in their blue sky
multiples, many dealership
acquisitions are once again
accretive to the publics'
earnings (see Chart V).
As U.S. dealership
acquisitions become more
financially attractive to public
companies, we expect less
capital will be allocated to
other investments and foreign acquisitions. As shown
in Chart VI, capital allocation
to these investments has
been on the decline since
2017.
LOWER INTEREST
RATES SUPPORT AN
ACTIVE BUY/SELL
MARKET

Financing is a key component of the buy/sell market
and blue sky values. Buyers
logically tap into acquisition
financing to reduce their
equity investment and improve their return on equity
("ROE"). Financing is often
the most crucial element of
getting a transaction done
in today's market place. In
Continued on pg. 12

NOVEMBER 2019

11



http://www.DIGITALDEALER.COM

Digital Dealer - November 2019

Table of Contents for the Digital Edition of Digital Dealer - November 2019

Digital Dealer - November 2019
Become an Accredited Leader
Happy and Harmonious Holidays – are Possible!
Are You Ready for 2020?
2019: Another Strong Year for Buy/Sell Activity and Valuations
What’s Your Post-Warranty Service Retention Strategy?
What’s Your Post-Warranty Service Retention Strategy?
Interview with Jane Millman of Riverhead Chrysler Dodge Jeep Ram
Introducing Our 2020 Theme: Defy Gravity
Remove Friction in your Media Mix to Drive Profitability
Connected Cars – Whose Data is it Anyway?
Consistent Communication Strategy
Marketing That’s Moving the Metal
Google My Business: Your Secret Weapon to Boost Sales
Digital Retailing Part 3: Digital Influence
Tatton Manning: A True Patriot!
5 Ways to Modernize Your Owner Retention Program (ORP)
Digital Dealer - November 2019 - Digital Dealer - November 2019
Digital Dealer - November 2019 - Cover2
Digital Dealer - November 2019 - 1
Digital Dealer - November 2019 - Become an Accredited Leader
Digital Dealer - November 2019 - 3
Digital Dealer - November 2019 - 4
Digital Dealer - November 2019 - 5
Digital Dealer - November 2019 - Happy and Harmonious Holidays – are Possible!
Digital Dealer - November 2019 - 7
Digital Dealer - November 2019 - Are You Ready for 2020?
Digital Dealer - November 2019 - 9
Digital Dealer - November 2019 - 2019: Another Strong Year for Buy/Sell Activity and Valuations
Digital Dealer - November 2019 - 11
Digital Dealer - November 2019 - 12
Digital Dealer - November 2019 - 13
Digital Dealer - November 2019 - 14
Digital Dealer - November 2019 - 15
Digital Dealer - November 2019 - What’s Your Post-Warranty Service Retention Strategy?
Digital Dealer - November 2019 - 17
Digital Dealer - November 2019 - What’s Your Post-Warranty Service Retention Strategy?
Digital Dealer - November 2019 - 19
Digital Dealer - November 2019 - Interview with Jane Millman of Riverhead Chrysler Dodge Jeep Ram
Digital Dealer - November 2019 - 21
Digital Dealer - November 2019 - 22
Digital Dealer - November 2019 - 23
Digital Dealer - November 2019 - 24
Digital Dealer - November 2019 - 25
Digital Dealer - November 2019 - Remove Friction in your Media Mix to Drive Profitability
Digital Dealer - November 2019 - 27
Digital Dealer - November 2019 - Connected Cars – Whose Data is it Anyway?
Digital Dealer - November 2019 - 29
Digital Dealer - November 2019 - Consistent Communication Strategy
Digital Dealer - November 2019 - 31
Digital Dealer - November 2019 - Marketing That’s Moving the Metal
Digital Dealer - November 2019 - 33
Digital Dealer - November 2019 - Google My Business: Your Secret Weapon to Boost Sales
Digital Dealer - November 2019 - 35
Digital Dealer - November 2019 - 36
Digital Dealer - November 2019 - Digital Retailing Part 3: Digital Influence
Digital Dealer - November 2019 - 38
Digital Dealer - November 2019 - 39
Digital Dealer - November 2019 - 40
Digital Dealer - November 2019 - 41
Digital Dealer - November 2019 - 42
Digital Dealer - November 2019 - 43
Digital Dealer - November 2019 - Tatton Manning: A True Patriot!
Digital Dealer - November 2019 - 45
Digital Dealer - November 2019 - 5 Ways to Modernize Your Owner Retention Program (ORP)
Digital Dealer - November 2019 - 47
Digital Dealer - November 2019 - 48
Digital Dealer - November 2019 - Cover3
Digital Dealer - November 2019 - Cover4
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