Pub. 57 2016-2017 Issue 2

29 WINTER 2016 firm works exclusively for sellers of higher value dealerships and dealership groups. We do not take listings or maintain inventory, rather we develop a customized, professional sales approach for each client to maximize transaction proceeds. In our view, dealerships are far too valuable to be sold any other way. We hope you find the information presented in this quar- ter’s report helpful to your business. We look forward to answering any questions you may have regarding The Blue Sky Report™, The Kerrigan Index or Kerrigan Advisors’ sell-side services for auto dealers and their families. Total AcquisitionActivity There were 172 dealership buy/sell transactions completed in the first nine months of 2016 according to The Banks Report. This compares to 184 transactions in the first nine months of 2015. After hitting a plateau in the first quarter, 2016’s buy/sell activity declined slightly in the 2nd and 3rd quarter, resulting in a 7% decline year-to-date. Historically, buy/sell activity increases in the 4th quarter as sellers seek to manage the tax implications of their transaction; however, with the expectation of a tax reduction from the Trump Administration, 4 th quarter activity could decline further as sellers hope for a more favorable tax rate on their sales proceeds in 2017. Chart I Total Number of Completed Dealership Transactions First 9 Months of 2016 versus First 9 Months of 2015 Source: The Banks Report & Kerrigan Advisors Analysis Note: Each transaction may include multiple franchises and dealerships. A transaction is defined as a single sellerand single buyer. 184 Transactions 172 Transactions 9 Months 2015 9 Months 2016 37 Multi-Dealership Transactions 49 Multi-Dealership Transactions First 9 Months 2015 First 9 Months 2016 Transaction activity declined by 7% in the first nine months of 2016 as compared to 2015. With a Trump Administration, buy/sell activity could increase signifi- cantly in 2017, if after-tax proceeds increase due to a more favorable tax code. In contrast to the decline in total transaction activity, the number of multi-dealership transactions continued to rise in the first nine months of 2016. 49 multi-dealership transac- tions were completed in the first nine months of the year, resulting in an impressive 32% increase over the same period in 2015 (see Chart II). Owners of multi-franchise groups are capitalizing on their ability to sell to a single buyer in one large transaction. Private buyers and new entrants remain the most active; however, certain publics, such as Lithia, are still seeking group platforms. By way of example, Lithia acquired the New York-based Carbone Auto Group, a Kerrigan Advisors’ client, in September. This acquisition was one of the largest transactions of the year in terms of number of dealerships and purchase price. Chart II Total Number of CompletedMulti-Dealership Transactions First 9 Months of 2015 versus 2016 Source: The Banks Report & Kerrigan Advisors Analysis While the number of transactions completed declined in the first nine months of 2016, the number of multi-deal- ership transactions increased 32%. More multi-dealership sellers are coming to market, prompted by retirement, estate planning and the lack of a succession plan.