In this edition of Inside Automotive, we are pleased to welcome back Erin Kerrigan, Founder and Managing Director of Kerrigan Advisors. Today, Kerrigan brings us the recently released Blue Sky Annual Report® to find out what happened in the buy/sell market last year and how those results could impact 2022.

The past 12-18 months have been incredible in the automotive retail industry. “Anytime you think he can’t get more active, he seems to get more active,” Kerrigan says. The huge activity is driven by buyers and sellers agreeing on valuation.

There are also some similarities between the new vehicle market and the buy/sell market, such as overwhelming demand. However, some dynamics are on the horizon, such as rising interest rates, which could dampen transactions. Kerrigan explains that it’s almost an absolute if interest rates go up, then valuations will go down.

Kerrigan adds that everyone wants to redeploy capital into auto retail. So even in markets where there isn’t a lot of growth, car dealerships are making a lot of money and want to buy their neighbors. There is a lot of consolidation in every market, but population growth is the main driver of price premiums.

Electric vehicles do not have nearly the same weight on valuations. Kerrigan thinks 2030 is an aggressive timeline for OEMs to go all-electric. She assumes that most of them won’t be 100% by 2030.

One of the most interesting highlights from Kerrigan Advisors latest Blue Sky Annual Report® is the decline of the domestic buy/sell market. Kerrigan says this is due, in part, to lower multiples. “If you’re trading at a multiple of three or four, say a multiple of four, and you’ve quadrupled your revenue, the tour valuation is more in line with the average of the past few years,” she explains. Yet valuations have risen dramatically, but the value of a large company is generally the present value of future earnings.

Combine that with earnings and property values, and it’s easy to see the inflationary environment for all assets.

For more highlights from Kerrigan Advisors’ Blue Sky report®Click here!

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