Second Quarter 2021 September 2021

Second Quarter 2021 September 2021Contact Erin Kerrigan: (949) 439-6768 | [email protected]

Contact Ryan Kerrigan: (949) 728-8849 | [email protected]

www.KerriganAdvisors.com

Securities offered through Bridge Capital Associates, Inc., Member FINRA, SIPC

To register to receive The Blue Sky Report® digitally each quarter, please visit www.KerriganAdvisors.com/The-Blue-Sky-Report

© 2021 Kerrigan Advisors. All rights reserved.


HOWARD KEYES, PRESIDENT OF KEYES AUTOMOTIVE GROUP

JOHN FIELDS, OWNER OF FIELDS AUTOMOTIVE GROUP

DAVID SMITH, CSO OF LARRY H. MILLER MANAGEMENT CORPORATION

HAL EARNHARDT, CO-OWNER OF EARNHARDT AUTO CENTERS

What the Largest Groups Have to Say About Kerrigan Advisors

“Kerrigan Advisors’ track record of success selling the largest dealership groups in our industry, along with their deep expertise navigating and advising on complex, multi-dealership transactions, was truly invaluable to achieving our goals.”

CORONA, CA

“We chose Kerrigan Advisors due to their expertise executing transactions within the automotive industry. Kerrigan Advisors’ team exceeded our expectations with a high degree of professionalism and a total commitment to meeting our company’s strategic goals for this transaction.”

“Kerrigan Advisors identified the perfect buyer for our stores, one that appreciated the value of entering the Phoenix market with great import brands. Kerrigan Advisors was critical to the success of this transaction.”

www.KerriganAdvisors.com(775) 993-3600

Professional. Confidential. Proven.

“We hired Kerrigan Advisors because we knew they would not only find the right buyer, they would also actively manage the sale process and ensure a smooth closing. No other sell-side advisor understands the fluctuations of the auto retail market the way Kerrigan Advisors does—and few if any understand the value of dealerships and blue sky as well as they do.”

Professional. Confidential. Proven. www.KerriganAdvisors.com

The Blue Sky ReportSecond Quarter 2021

1

242221

202 216 233

289320

113144

2015 2016 2017 2018 2019 2020 TTM Jun-2021

First Half2020

First Half2021

+27%

$1,761

$200

$790 $768 $737 $704 $714$558

$1,961

2015 2016 2017 2018 2019 2020 2021

Pre-Tax Profit PPP Estimate

2015-2019 Average:$742K

+164%

DEALERSHIP ACQUISITION ACTIVITYThe buy/sell market over the last 12 months has been nothing short of extraordinary. Since the economy reopened in June 2020, the number of auto dealership buy/sells completed hit a record 320 through June 2021 (see Chart I). At the current run rate, Kerrigan Advisors expects 2021 to exceed 2020’s transaction count by a significant margin, making this year the most active in history.

Chart I | Total Number of Completed Dealership Transactions

Source: The Banks Report, Automotive News, Kerrigan Advisors’ ResearchNote: A transaction can include multiple franchises and is defined as one buyer and one seller.

2021 buy/sells are already at record numbers, exceeding 2020 by 27%, marking the highest number of buy/sells for a half year period since Kerrigan Advisors started tracking the data.

“The acquisition market is probably as frothy as it’s ever been.”

Earl Hesterberg, President & CEO, Group 1 Automotive Second Quarter 2021 Earnings Call

Today’s activity level is a byproduct of the industry’s explosive profitability. In the first half of 2021, the average dealership earned a jaw-dropping $1.96 million, 164% more than the industry’s average between 2015 and 2019 (see Chart II), and remarkably more than any prior year’s earnings pre-COVID. Even with the removal of the PPP funds received in 2021, most dealerships are achieving profitability levels several times higher than historical averages.

Chart II | Average Dealership Pre-Tax Profit, First Half 2015-2021, $ in 1,000s

Source: NADA Industry Analysis

Dealership earnings in the first half of 2021 are 164% higher than the pre-COVID industry average (2015 – 2019). Even without PPP funds factored in, dealership earnings remain historically high.



2

10.6%

29.6%

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New Cars Used Cars

One of the primary drivers of auto retail’s stellar performance in 2021 is the limited supply of vehicles resulting from the semiconductor chip shortage. The resurgence of COVID cases is currently exacerbating this setback, causing cascading disruptions throughout the entire auto industry’s supply chain. Through June, the estimated days supply of new vehicles reached a record low of 29 (see Chart III). The global shortage of semiconductors may cut worldwide auto production by as much as 7.1 million vehicles in 2021, a 9.2% decline from pre-pandemic levels.

Chart III | Estimated Days Supply of New Vehicles at End of Each Month

Source: Cox Automotive

Supply chain issues sent days supply of new vehicles plummeting 58.5% to a record low of 29 days in the first half of 2021. With a resurgence of COVID cases worldwide, inventory is expected to remain constrained through 2022.

70

29

20

30

40

50

60

70

80

Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21

-58.5%

This limited vehicle supply is intersecting with increasing consumer demand. As the economy rebounds, consumers are tapping into quarantine savings and government stimulus to purchase new and used vehicles. Record low borrowing costs are driving down car payments, making consumers less sensitive to today’s soaring vehicle prices, particularly as vehicle scarcity instigates a buying frenzy for high demand models. Many consumers also have a growing appreciation for the safety and importance of personal mobility (versus public transportation and ridesharing), spurring a notable preference for spacious and expensive SUVs, CUVs and trucks.

Limited vehicle supply, coupled with strong buyer demand, is resulting in record prices for both new and used vehicles (see Chart IV). New and used vehicle prices are up 10.6% and 29.6%, respectively since January 2020, the largest rise in an 18-month period.

Chart IV | Change in Average New and Used Vehicle Purchase Price Since January 2020

Source: Edmunds.com, Wall Street Journal

Inventory shortages and consumer demand sent new and used vehicle prices skyrocketing, up 10.6% and 29.6% respectively since January 2020.

“We expect the current environment of demand exceeding supply to continue into 2022.”

Mike Jackson, CEO, AutoNation Second Quarter 2021 Earnings Call



3

74.6% 74.7% 76.0% 76.2% 75.9% 75.4%

70.6%

62.7%

72.4% 72.7% 73.0% 73.1% 73.6% 74.7%

69.3%

61.9%

2014 2015 2016 2017 2018 2019 2020 First Half2021

Average Private* Average Public

This increase in vehicle prices is also leading to record gross profits per vehicle (see Chart V). Year to date through June, average new vehicle gross profits per vehicle retailed more than doubled compared to 2019 pre-pandemic levels, while used vehicle gross profit per vehicle rose an impressive 79%.

Chart V | Average Dealership Gross Profits per New & Used Vehicle Retailed Excluding F&I


Gross profits continued to soar, with retail gross PNVR more than doubling and retail gross PUVR up 79% versus 2019’s pre-pandemic levels.

$809

$1,158

$1,919

$1,315 $1,593

$2,358

2019 2020 First Half 2021

GPNVR GPUVR

With no end in sight to the industry’s supply constraints, higher gross profits are expected to be a fixture of the industry into next year and potentially even longer. More and more OEMs are announcing plans to reduce their days supply of inventory, even after chip availability rebounds. Notably, OEMs have recently experienced the economic benefit of undersupplying the market, including lower incentive spending and higher corporate profits.

OEMs are not alone in their desire to operate with leaner inventories. Dealers today are witnessing the economic advantages of a more productive and efficient business model, including a tremendous rise in revenue per employee. As a result, dealers are achieving lower SG&A costs as a percentage of gross profit (see Chart VI) and discovering fewer employees can produce higher profits when they are more productive. Much of these productivity gains are expected to last long after inventories rebound.

Chart VI | SG&A as a Percentage of Gross Profit (Average Private* vs. Average Public)

Source: SEC Filings, NADA Industry Analysis, Kerrigan Advisors Analysis* SG&A expenses for the average private dealership is adjusted to addback owners salary and gross profit is adjusted to include a portion of other income.

Higher productivity and staffing efficiency have driven SG&A costs down to historically low levels as a percentage of gross profit for both private and public dealership groups.

“A material part of the [earnings] improvement is due to productivity gains, which will largely be a permanent benefit.”

Daryl Kenningham, President, US Operations, Group 1 Automotive Second Quarter 2021 Earnings Call



4

When inventory levels rebound, most dealers are committed to retaining productivity gains, particularly as the industry transitions towards a digital advertising and retailing model (see Chart VII). As OEMs work to achieve their electrification goals, the auto retailing experience will increasingly move from the showroom to the living room, with consumers completing more of their car purchases online. The benefits of digital advertising are already being felt, as advertising spending per vehicle continues to decline, while sales volume rises (see Chart VIII).

Chart VII | Dealership Advertising Expenditures Traditional Versus Digital Share


Spending on traditional and digital advertising has flipped since 2015, with the more effective digital advertising increasing 118% to 61% of advertising spending, while traditional advertising dropped to just 39% of the advertising budget.

72%

28%

39%

61%

Traditional Digital2015 2020

-46%+118%

“The pandemic has also been an inflection point towards digitalization.”


Chart VIII | Average Dealership Revenue ($ in M) vs. Advertising Expense per New Vehicle Retailed (PNVR)


The cost benefit of a shift to digital advertising is reflected in a 15.9% decline in advertising spending per new vehicle retailed, relative to an 11.6% increase in total sales since 2019.

$400

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2014 2015 2016 2017 2018 2019 2020 TTM Jun-2021

Ave

rtisi

ng P

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l Rev

enue

Total Revenue Avertising PNVR

“We’re spending a lot less on advertising, and it’s even more effective.”

Heath Byrd, CFO, Sonic Automotive Second Quarter 2021 Earnings Call



5

Given the industry’s incredible profit performance over the last 12 months and positive outlook for 2022 and beyond, Kerrigan Advisors finds most dealers are buyers, not sellers, and few are willing to accept the status quo. Today’s dealers, both private and public, want to grow and have tremendous access to capital to do so, a trend discussed further in this report (see Second Quarter 2021 Buy/Sell Trends section of this report on page 15). Few alternative investments provide the risk adjusted returns available from dealership acquisitions. Thus, for most dealers the best allocation of their capital is auto retail.

The public dealer groups are also benefiting from a continued rise in their stock price, as Wall Street investors experience outsized returns from their investments in auto retail. Since 2009, the Kerrigan Index has risen 1038% and since the 2020 lows is up an impressive 286% (see Chart IX). Though the industry is likely in a state of change over the next decade, many believe the largest retailers will greatly benefit from this period of transformation. The publics’ financial performance over the last twelve months (see Chart X) demonstrates their incredible opportunity to dramatically increase their bottom line both through accretive acquisitions and improved profitability.

Chart IX | The Kerrigan Index™ vs. S&P 500 (Rebased to 100 at Jan. 1, 2000)

0

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600

800

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2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

The Kerrigan Index™ S&P 500 (rebased)

THE KERRIGAN INDEXTM

Source: Yahoo Finance, Microsoft Finance, Kerrigan Advisors’ Analysis

Methodology: The Kerrigan Index™ is composed of the seven largest publicly traded auto retail companies with operations focused on the US market, including CarMax, AutoNation, Penske Automotive Group, Lithia Motors, Asbury Automotive Group, Group 1 Automotive and Sonic Automotive. The Kerrigan Index™ is weighted by the market capitalization of each company and benchmarked at 100 on 1/3/2000.

The Kerrigan Index continues to outperform S&P 500—up 1038% since 2009, outperforming the S&P 500 by 179%. Since the 2020 lows, the Kerrigan Index has risen 286%.

$1,142 $1,302 $1,381 $1,738 $1,509 $1,659

$1,887

$3,973

($500)$0

$500$1,000$1,500$2,000$2,500$3,000$3,500$4,000$4,500

2014 2015 2016 2017 2018 2019 2020 TTM Jun-2021

AutoNation Penske Group 1 Asbury Sonic Lithia

Chart X | Public Dealer Groups’ Net Income, $ in Millions

Source: SEC Filings

The publics collectively increased net income by 139% on a trailing-twelve-months basis, relative to 2019’s pre-COVID levels, demonstrating the tremendous earnings growth potential of the industry’s top consolidators.



6

With more buyers seeking acquisitions from a limited supply of sellers, the rising tide of industry performance is lifting most boats, resulting in record valuations for many franchises (see Chart XI). Including real estate, the average dealership’s enterprise value is approaching $21M, a 19% percent increase over 2019. Like the new vehicle market, demand for dealerships is far exceeding supply, creating a seller’s market for most franchises, particularly those in high growth markets like Florida and Texas.

$9.6 $10.3 $10.7 $11.3 $11.1 $11.5 $11.8

$6.8 $6.6 $6.3 $6.1 $6.4$7.7

$9.1$16.4 $16.9 $17.0 $17.4 $17.5

$19.2$20.8

2015 2016 2017 2018 2019 2020 Q2 2021

Real Estate Value Blue Sky Value

+19.2%

Chart XI | Kerrigan Advisors’ Estimated Average Dealership Blue Sky and Real Estate Value, $ in Millions

Source: NADA Industry Analysis, Kerrigan Advisors’ Analysis

Demand for auto dealerships exceeds supply, driving valuations to record levels: up 19% for the average dealership since 2019.

With this backdrop, Kerrigan Advisors has identified the following three important trends we expect to meaningfully impact the buy/sell market for the remainder of 2021 and into 2022.

Ø Buyer pool of existing dealers expands as cash accounts rise and access to debt grows Ø Sellers become less flexible on valuation as their profits soar Ø OEMs are increasingly overwhelmed by 2021’s buy/sell volume and less flexible on framework terms

The Blue Sky Report® is informed by Kerrigan Advisors’ nationwide experience enhancing the value of the industry’s leading dealers through the lifecycle of growing, operating, and selling their businesses. Since our founding, Kerrigan Advisors has had the honor of representing the industry’s largest transactions, including more Top 150 Dealership Groups than any other firm in the industry.

Our team oversees and manages our client engagements from beginning through a successful outcome. In our view, dealerships are far too valuable to be advised any other way. We do not take listings, rather we develop a customized sales approach for each client to achieve their transaction and financial goals. Our professional sale process has led to the highest sale price per transaction of any firm over the last five years.

We hope you find the information presented in this quarter’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’ consulting services.

Erin Kerrigan | [email protected] or (949) 439-6768Ryan Kerrigan | [email protected] or (949) 728-8849

To have a confidential conversation with our managing directors, please contact us directly. We look forward to connecting with you.



7

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106 101114

103113

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2015 2016 2017 2018 2019 2020 2021

+27.4%

Total Acquisition Activity

There were 144 dealership buy/sell transactions in the first half of 2021, a 27.4% increase over the first half of 2020 and a record number for the period (see Chart XII). The high level of buy/sell activity in the first half reflects 2021’s robust buy/sell market and the likelihood that this year will surpass last year’s peak. As noted in Kerrigan Advisors’ first quarter report, our firm expects transaction activity to rise dramatically in the second half of the year as more sellers seek to complete their sale before year-end to lock in a lower tax rate and avoid a potential tax increase in 2022.

Chart XII | Total Number of Completed Dealership Transactions, First Half

Source: The Banks Report, Automotive News, Kerrigan Advisors’ ResearchNote: A transaction often includes multiple dealerships and is defined as a sale of a dealership or dealership group by one seller to one buyer.

Transactions rose 27.4%, with 144 completed in first half of 2021 vs 2020, on track for another historic year of buy/sell activity. The risk of an increase in taxes in 2022 continues to be a driver for transaction activity in 2021.

The number of multi-dealership transactions in the first half of 2021 increased an incredible 96% as compared to 2020, hitting a new record. There were 51 multi-dealership transactions in the first half of 2021, representing 35.4% of the buy/sell market (see Chart XIII), the highest percentage ever recorded during the first half of the year. Kerrigan Advisors expects the buy/sell market share of multi-dealership transactions to remain high for the remainder of 2021, as the pool of buyers able to complete large transactions continues to grow in large part due to increasing access to capital and financing (see Second Quarter 2021 Buy/Sell Trends section of this report on page 15).

Chart XIII | Total Number of Multi-Dealership Transactions vs. Percentage of Total Dealership Transactions, First Half

Multi-dealership transactions are trending dramatically upward, rising 93% as compared to the pre-pandemic average (2015-2019) to 35.4% of the market.

22

31

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2015 2016 2019 2020 20212017 2018

Multi-Dealership Transactions % of Total

2015-2019 First Half Average:26 Multi-Dealership Transactions

+93%

Source: The Banks Report, Automotive News, Kerrigan Advisors’ Research



8

Among the franchises being acquired, import non-luxury franchises increased their market share in the first half of 2021 to 41% of the buy/sell market, the highest level since 2015 (see Chart XIV). Kerrigan Advisors expects this trend to continue into 2022. During peak periods of profitably, we find buyer demand for import non-luxury franchises rises, as these franchises tend to outperform the market. Also, some of these franchises were better positioned with greater inventory availability and fewer supply constraints. It should be noted that import franchises represented 58% of the buy/sell market (41% for non-luxury and 17% for luxury) in the first half of 2021, a disproportionate representation relative to their share of total franchises, currently just 34%. By contrast, domestic franchises, which were more affected by the chip shortage, were underrepresented in the buy/sell market at 42% relative to their 66% market share of US franchises.

Chart XIV | Buy/Sell Market Share by Type of Franchise


Import franchises represent a disproportionate share of the buy/sell market at a combined 58% (41% non-luxury and 17% luxury), relative to their franchise market share of just 34%. 31%

44% 44%55% 56% 50% 42%

22%19% 18%

14% 13% 20%17%

47% 37% 38% 31% 31% 30%41%

2015 2016 2017 2018 2019 2020 First Half2021Domestic Import Luxury Import Non-Luxury

In the first half of 2021, Toyota represented over 10% of the franchise buy/sells, in line with Ford’s, CDJR’s and Chevrolet’s buy/sell market share (see Chart XV). This is impressive when considering that Toyota has only 1,238 franchises in the US, as compared to Ford’s 3,006, CDJR’s 2,461, and Chevrolet’s 2,924. Kerrigan Advisors continues to see tremendous demand for Toyota franchises due to the OEM’s partnership business model with its dealers. Buyers are more comfortable investing in a franchise that considers its dealer network a key ingredient of its success, particularly in an environment where OEMs are flirting with the idea of selling direct to consumers and changing the dealership business model with the introduction of electric vehicles.

Chart XV | Buy/Sell Market Share by Franchise, First Half 2021


High demand for Toyota franchises continues. Although Toyota has less than half as many franchises as Ford, CDJR and Chevrolet, its percentage of the buy/sell market is on par with these domestic OEMs.

Ford11.4%

Toyota10.4%

Chevrolet10.1%

CDJR10.1%

Buick GMC8.1%Hyundai

5.9%

Kia5.2%

Subaru5.2%

Nissan3.9%

Audi2.6%

Cadillac2.6%

Volkswagen2.6%

Honda2.3%

Lexus2.3%

Mercedes2.3%

Lincoln2.0%

BMW1.3%

Mazda1.3%

Volvo1.3%

Infiniti1.0%

JLR1.0%

Porsche1.0%

Acura0.7%

Others5.5%



9

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$832 $661 $795 $742 $671

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2014 2015 2016 2017 2018 2019 2020 TTM Jun-2021

Q3 2020 Q4 2020 Q1 2021 Q2 2021

First Half 2021:$2,149

US Public Acquisition Activity

US public acquisition spending of $2.15 billion in just the first half of 2021 nearly surpassed 2020’s full year of spending. On a trailing twelve-month basis, the publics spent a remarkable $4.45 billion on US dealership acquisitions, the most ever spent in a 12-month period in the history of the industry (see Chart XVI).

Chart XVI | US Public Dealership Groups’ US Dealership Acquisition Spending, $ in Millions

Source: SEC Filings for Asbury, AutoNation, Group 1, Lithia, Penske & Sonic

The publics continued to allocate capital to acquisitions, spending a record $4.45 billion over the last four quarters.

“There are a lot of deals out there right now. And so, we’re strategically buying deals that fit our footprint or markets that we’re going into.”

Jeff Dyke, President, Sonic AutomotiveSecond Quarter 2021 Earnings Call

With the publics’ stock prices on the rise, more acquisitions are accretive to these companies’ earnings. As noted in our first quarter 2021 report, Kerrigan Advisors finds Wall Street investors are rewarding the most acquisitive publics with higher valuations as a percentage of revenue, an increasingly common valuation metric in a consolidating industry with tremendous digital upside. Notably, Lithia, which acquired 58 franchises in the first half of 2021, reported on its second quarter earnings call that the company is pricing dealership acquisitions between 15% and 30% of revenue on an enterprise value basis, including real estate where applicable. At this percentage of revenue, Lithia’s acquisitions are very accretive to earnings given the company’s stock price is currently valued at 64% of revenue (see Chart XVII).

Chart XVII | Public Dealership Groups’ Market Capitalization as of July 30, 2021 as a Percentage of TTM Revenue

Source: Microsoft Finance, SEC Filings for Asbury, AutoNation, Group 1, Lithia, Penske & Sonic

Acquisitions prove accretive to publics’ earnings as investors reward acquisitive publics with higher valuations – Lithia’s market capitalization is valued at a remarkable 64% of revenue.

20%25%

29%

36%

45%

64%

Sonic Group 1 Penske AutoNation Asbury Lithia



10

Since Wall Street is paying a price premium for companies that grow through acquisition, it is not surprising to see more publics enter the acquisition market in 2021. Whereas last year only Lithia and Asbury acquired US dealerships, year to date Penske, Group 1 and Sonic have also made acquisitions totaling five dealerships, leading to 61 public dealership acquisitions in the first half of the year.

Since 2019, the publics have notably increased their dealership count by 48, becoming net buyers instead of net sellers of dealerships (see Chart XVIII). As the largest companies in auto retail, the publics are once again leading industry consolidation, after years of largely sitting on the sidelines (except for Lithia).

“We think that we’ve built what we need to build to constructively and meaningfully aggregate this unconsolidated space.”

Bryan DeBoer, President & CEO, Lithia & DrivewaySecond Quarter 2021 Earnings Call

Chart XVIII | US Public Dealership Groups’ Domestic Franchise Acquisitions vs. Divestitures

Source: SEC Filings, Automotive News, Kerrigan Advisors’ Research

Since 2019, the publics have reversed course becoming net buyers, rather than sellers of dealerships.19

4043

23

61

12

Acquisitions Divestitures

2019 2020 First Half 2021

KERRIGAN ADVISORS’ RECENT TRANSACTION ANNOUNCEMENT“The success we’ve had over the years is a direct reflection of our tireless efforts to keep the customer experience front and center—no matter what challenges came our way. Kerrigan Advisors brought that same sense of commitment and dedication to the way they represented my dealerships. As a result, they were able to reflect to the marketplace an accurate picture of the dealerships’ value, both in terms of the quality of the assets and the importance of our people.”

Ron Bubar, Owner of Grand Junction Subaru & Volkswagen

Represented on the sale of

toGRAND JUNCTION, CO


July 2021



11

Through the first half of 2021, the publics increased their allocation to US dealership acquisitions to 53%, from 20% in the first half of 2020 (see Chart XIX). While acquisition spending increased, these companies still have options for their capital. If they do not see acquisitions that make economic sense for their shareholders, they can reinvest their cash flow into their own stock, which they increasingly did in the first half of 2021. Spending on stock buybacks increased 494% in the first half of 2021, amounting to $1.1 billion. While this level of spending is about half of their dealership acquisition spending during the period, it is still a significant amount of capital and a testament to the publics’ belief in the value of their own companies and auto retail’s profitable future.

Chart XIX | US Public Dealership Groups’ Capital Allocation, First Half 2020 vs. 2021, $ in Millions

Source: SEC Filings for Asbury, AutoNation, Group 1, Lithia, Penske & Sonic

Stock buyback spending increased 494% in 2021, demonstrating the publics’ confidence in their valuations and the future of auto retail.

Stock Buyback$1,136 28%

Dividends$108 2%

Capex$521 13%

US Dealership Acquisitions

$2,149 53%

International & Other Acquisitions

$167 4%Stock Buyback

$191 24%

Dividends$62 8%

Capex$373 48%

US Dealership Acquisitions

$155 20%

First Half 2021First Half 2020

“I bought 9% of AutoNation rather than doing a lot of acquisitions that I thought were overpriced.”


Note: LMP Automotive is the newest public company in our industry. As the company continues to grow its platform, Kerrigan Advisors will monitor the company’s performance and may consider including a review of its acquisitions in this section of our report and in the Kerrigan Index if it approaches the size of the legacy publics in the industry.



12

Private Acquisition Activity

Private buyers continue to dominate industry consolidation, albeit less than they did in 2020 given the publics renewed commitment to acquisitions. Private buyers acquired 80% of the franchises sold in the first half of 2021 (see Chart XX), relative to 91% in 2020. Interestingly, the top 144 private dealers represented only 6% of the buy/sell market in the first half. By contrast, in 2020, this cohort of the largest private groups completed 20% of the industry’s buy/sells. Kerrigan Advisors believes the disparity in the largest private group’s buy/sell market share between 2021 and 2020 reflects the growing pool of smaller buyers entering the buy/sell market, some for the first time, creating increased competition for all acquisitions (see Second Quarter 2021 Buy/Sell Trends section of this report on page 15 for additional discussion regarding the growing pool of buyers).

Chart XX | Percentage of Franchise Acquisitions by Buyer Type, First Half 2021

Source: The Banks Report, Automotive News, Kerrigan Advisors’ ResearchNote: This chart reflects franchises, not dealerships. CDJR is counted as one franchise for this analysis.

Private buyers continue to dominate the buy/sell market, a reflection of the fragmentation of auto retail and the opportunity for further industry consolidation.

Private248 Franchises

80%

Public61 Franchises

20%

Top 144 Private Dealership Groups

6%

“The franchise business is still extremely fragmented in this country. And so there’s still tremendous opportunity for growth.”

David Bruton Smith, CEO, Sonic AutomotiveSecond Quarter 2021 Earnings Call

Interestingly, the industry’s financial success has also made it even harder for outside capital to find attractive dealership investments given tremendous competition from strategic buyers, both large and small. Existing dealers today have little need for an outside capital partner to fund growth given their access to capital from operations and existing lender relationships. As a result, Kerrigan Advisors expects outside capital will find the next 12 months to be a challenging environment in which to invest in auto dealerships.



13

Dealership Real Estate

Dealership real estate values rose again in the first quarter of 2021 (see Chart XXI), supported by record low mortgage rates and high loan-to-value financing. The credit quality of the auto retail industry and its proven success through the pandemic has increased investor interest in dealership real estate assets, resulting in a decline in industry cap rates. In the first half of 2021, Kerrigan Advisors saw industry cap rates dip below 7% and in certain cases approach 6% for higher quality tenants.

Chart XXI | Kerrigan Advisors’ Estimated Average Dealership Real Estate Value ($ in Millions) vs. Annual Change (%)


Dealership real estate values continue to rise, up to an average of $11.8 million in the second quarter of 2021, driven by low mortgage rates and high loan-to-value financing.

$9.6$10.3

$10.7$11.3 $11.1

$11.5 $11.8

4.3%7.3%

3.7%4.9%

-1.7%

3.7%2.4%

2015 2016 2017 2018 2019 2020 Q2 2021

Real Estate Value ($ in M) Annual Change (%)

Not surprisingly, higher real estate values and image upgrade expenses are leading to rising rents, despite declining cap rates. The average dealership rent expense reached a record $823K on a trailing twelve-month basis (see Chart XXII) in June 2021. While higher rent payments add risk to the dealership business model, the industry’s rising gross profit levels resulted in an overall decline in the rent-to-gross profit margin to 9.3%, the lowest level since 2015, demonstrating dealerships’ ability to absorb the increasing fixed expense of facilities.

Chart XXII | Average Dealership Rent Expense ($ in 1,000s) vs. Rent Expense as a Percentage of Gross Profit (%)


Higher real estate values and image upgrades led to record average rent expense of $823K for the trailing twelve months ending June 2021; however, rising gross profits led to a reduction of rent as a percentage of gross to just 9.3%, the lowest level since 2015.

$675$724 $751 $788 $775 $804 $823

10.3%10.7%

11.0%11.5%

11.0% 11.2%

9.3%

2015 2016 2017 2018 2019 2020 TTMJun-2021

Rent Expense ($ in 1,000s) Rent-to-Gross Profit (%)

As gross profit per new vehicle retailed rises far above rent per new vehicle retailed (see Chart XXIII on the following page), OEMs are demanding more facility upgrades as part of buy/sell transactions. Kerrigan Advisors expects auto retailers’ remarkable profit performance in 2021 will result in an increase in facility investments in 2022. These real estate investments could be misplaced as the industry looks to right size property to reflect a lower days supply of inventory in the future.



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Chart XXIII | Average Dealership Rent per New Vehicle Retailed (PNVR) vs. Gross Profit PNVR, Excluding F&I


Gross profit per new vehicle retailed (excluding F&I) rose to more than double rent per new vehicle retailed—a $1,023 difference in the first half of 2021.

$896

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2015 2016 2017 2018 2019 2020 First Half2021

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$1,023PVR

Recently, Kerrigan Advisors has been unimpressed by many OEMs management of image requirements for their dealer networks. For most OEMs, their dealers’ largest single investment, real estate, is not even reaching the white board as the OEMs plans for electrification and digital retailing. Perhaps the best example of this challenge is Jaguar, which put its facility plans on hold after announcing a move to an all-electric fleet despite a number of dealers having recently completed, or in the midst of completing, one of the more expensive image facilities in the industry. If OEMs do not adjust dealership real estate requirements to reflect a changing auto retail environment, Kerrigan Advisors believes real estate investments will become one of the more divisive issues between OEMs and dealers during the transition to an electrified product line and could ultimately impact blue sky values and multiples.

A Leading Sell-Side Advisor and Thought Partner to Auto Dealers

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At Kerrigan Advisors, our firm’s success is attributed to our team’s laser-focus on fulfilling each client’s personal and financial goals.

© 2021 Kerrigan Advisors. All rights reserved.Securities offered through Bridge Capital Associates, Inc., Member FINRA, SIPC



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SECOND QUARTER 2021 BUY/SELL TRENDSKerrigan Advisors’ successful sell-side advisory work across the US as well as our experience consulting with growing dealership groups, gives our firm a unique perspective on the trends affecting today’s auto retail buy/sell market. For the second quarter of 2021, we identified the following three trends which we expect to meaningfully shape the buy/sell market for the remainder of 2021 and into 2022.

Ø Buyer pool of existing dealers expands as cash accounts rise and access to debt grows Ø Sellers become less flexible on valuation as their profits soar Ø OEMs are increasingly overwhelmed by 2021’s buy/sell volume and less flexible on framework terms

Buyer Pool of Existing Dealers Expands as Cash Accounts Rise and Access to Debt GrowsBusinesses across the country, particularly auto dealerships, are paying down debts with their tremendous cash flow from operations. Undrawn lending commitments such as floorplan are currently at record levels. J.P. Morgan and Bank of America, two of the largest banks in the US, are approaching a collective trillion dollars of capital availability for business borrowing (see Chart XXIV).

Chart XXIV | Undrawn Lending Commitments (J.P. Morgan & Bank of America), $ in Billions

Source: Wall Street Journal, J.P. Morgan, Bank of America

J.P. Morgan and Bank of America have nearly a trillion dollars in undrawn lending commitments combined, a historic level of capital availability.

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In this environment, the average dealer’s debt to equity ratio is approaching just 1.06, a significant decline from 2019’s ratio of 1.37 (see Chart XXV). Today, dealers not only have a historic amount of cash in their bank accounts, they also have increasing access to debt. Many find themselves in the strongest financial position they have been in their careers and are better able to consider meaningful expansion and large multi-dealership acquisitions.

Chart XXV | Average Dealership Debt to Equity Ratio


The average dealership’s debt to equity ratio declined 15.9% in the last six months to 1.06 in June 2021, reflecting record cash reserves and untapped financing.

1.37 1.261.066.2%

-8.0%-15.9%

2019 2020 Jun-21

Net Debt to Equity Annual Change (%)



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As a result, Kerrigan Advisors sees a growing pool of dealers who are anxious to put their capital to work and acquire multiple dealerships and dealership groups. While there have always been buyers for dominant dealerships in growing markets, the buyer pool for smaller and medium sized dealership groups was often quite thin, particularly if a major consolidator was uninterested. Today, the pool of buyers for most dealerships is abundant, as more dealers are financially confident in deploying considerable amounts of capital towards major expansion.

With the drumbeat of consolidation getting ever louder, dealers increasingly believe size and scale will determine their future success. Many are focused on expanding their regional market share and diversifying their franchise mix. Few believe the status quo will suffice to succeed in a changing auto retail environment. The good news today is dealers have the capital to execute on their growth plans.

Sellers Become Less Flexible on Valuation as Profits SoarMost dealers earned more in just the first six months of 2021 than they have in any previous 12-month period prior to COVID-19 (see Chart XXVI). Many have changed their business’ operations and are discovering the tremendous profits they can earn when their people and assets are more productive and their operations more efficient. Kerrigan Advisors finds most dealers are committed to finding a way to retain higher grosses and lower expenses going forward. Few expect to return to the low margin business model of the pre-pandemic era.

“We are at very low leverage levels. So, we have tremendous capacity to be opportunistic.”

Joe Lower, CFO, AutoNationSecond Quarter 2021 Earnings Call

Chart XXVI | Average Dealership Annual Pre-Tax Profit ($ in Millions) vs. Net to Sales (%)


More efficient business operations and higher gross profits contributed to increased profits in the first half of 2021—an average of $1.96 million, more than any pre-pandemic 12-month period. This led to an incredible trailing-twelve-month profit of $3.51 million, 147% more than the pre-COVID average (2014-2019).

With this in mind, many sellers are increasing their pricing expectations for their businesses and becoming less flexible with regard to valuation. As the industry approaches the completion of its second year of record earnings, fewer sellers are willing to consider a valuation based on pre-pandemic earnings. This is particularly the case as more OEMs expect inventories to remain constrained through 2022 and consumer demand to stay high, resulting in a continuation of dealers’ vehicle pricing power.

Sellers are also increasingly aware that their current return on equity (“ROE”), which is estimated at over 57% as of the end of June 2021, will be very hard to replicate in today’s low yield investment environment (see Chart XXVII on the following page). Few investments provide the level of ROE afforded dealers in 2021, particularly on a risk adjusted basis.

$1.38 $1.50 $1.47 $1.39 $1.36 $1.42

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Pre-Tax Profit ($ in M) Net to Sales (%)

2014-2019 Average:$1.42M

+147%



17

Chart XXVII | Historical Investor Returns

Source: NADA, Kerrigan Advisors’ Analysis, Bloomberg, Goldman Sachs, MSCI, Moody’s, US Federal Reserve Bank, CNBC

Dealership ROE in 2021 is an average 57.6%, a remarkable return compared to alternative investments in today’s low yield investment environment.

1.4% 2.6%

9.4% 10.1%13.6%

57.6%

US 10-YearTreasuryAug-21

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As the months of record earnings persist, yesterday’s valuations seem ludicrous relative to today’s earnings. This pricing challenge may become even more pronounced if 2021’s earnings continue into 2022 and pre-pandemic earnings seem less relevant as time passes. If fewer buyers agree with sellers’ profit projections, sellers’ valuation expectations could temper buy/sell activity in 2022.

OEMs are Increasingly Overwhelmed by 2021’s Buy/Sell Volume and Less Flexible on Framework TermsThe volume of buy/sells has grown exponentially over the last 12 months and is projected to reach a new record in the second half of the year as sellers aim to secure a lower tax rate on their sale proceeds. The unprecedented rise in buy/sell activity is a shock to the OEM approval process. The volume is simply overwhelming their systems.

Not surprisingly, the OEM approval process is becoming less responsive and more bureaucratic, with certain OEMs taking several weeks to send buyers applications and often many days to respond to buyer and seller correspondence. In Kerrigan Advisors’ recent experience, General Motors has been the least responsive in processing their dealers’ buy/sells. Kerrigan Advisors expects the challenges of OEM staffing on buy/sell approvals to become a crisis issue in the fourth quarter, given the economic fallout of missing a 2021 close.

Kerrigan Advisors also finds OEMs are increasingly demanding framework agreement terms from large group buyers that are outside the scope of prior requirements of a buy/sell approval. Emboldened by the level of buy/sell activity and cautious about the future of their franchise system, certain OEMs are placing tremendous restrictions on consolidators as part of the transaction approval process. In some cases, these restrictions jeopardize a transaction’s closing.

Kerrigan Advisors will continue to monitor the efficiency of each OEMs buy/sell approval process and may factor this into our future blue sky multiples. As with any business, the more liquid the business, the more valuable. The lengthier a buy/sell approval process becomes, the less liquid the franchise investment. The old adage in investment banking, “time kills deals”, is still alive and well. OEMs that take too much time to approve their buy/sells and subject the process to unnecessary red tape and restrictions will likely find a larger number of their buy/sells fall apart, ultimately leading to less buyer demand and potentially lower blue sky multiples for their franchises.



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KERRIGAN ADVISORS’ BLUE SKY MULTIPLESKerrigan Advisors’ blue sky multiples and accompanying analysis outline the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments. Most dealerships are valued based on their assets plus blue sky, excluding working capital. Kerrigan Advisors’ blue sky multiples are typically applied to trailing twelve months adjusted earnings before non-floorplan interest and taxes. Given the tremendous improvement in dealership profits since the economic lockdown of 2020, our firm finds most buyers are applying blue sky multiples to an average of 2019’s pre-pandemic profits and 2021’s trailing twelve month adjusted post-pandemic earnings. In so doing, buyers are hedging their bets, giving equal weight to the potential for 2021’s profit levels to sustain for some period, while considering the possibility of a return to pre-pandemic earnings in the future.

Kerrigan Advisors’ blue sky multiples are based on our view of franchise values in the current buy/sell market. Each dealership has its own unique valuation drivers and significant analysis should be done to determine the market clearing price for a dealership’s blue sky. Accurately adjusting earnings, for instance, is critical in determining blue sky value.

Kerrigan Advisors’ high, average and low multiples reflect the variability in dealership values, depending on specific circumstances and situations. In our experience, the seven key factors that drive valuation of a specific franchise are: (1) earnings growth expectations; (2) buyer demand; (3) real estate; (4) market vehicle preference; (5) franchise market representation; (6) customer relations and (7) revenue mix. The combination of these seven factors determines the blue sky multiple a buyer is ultimately willing to pay.

Factor One: Earnings Growth Expectations

• Higher Growth = Higher Multiple: Underperforming dealerships, particularly those in high growth markets, often command higher multiples. Buyers of these underperformers expect earnings to grow post-closing and are thus willing to pay a higher multiple, knowing they will achieve a strong ROI.

• Lower Growth = Lower Multiple: Dealerships which are overperforming, either due to an aggressive operator or unsustainable market dynamics usually command lower blue sky multiples.

Average Blue Sky Multiple

Adjusted Blue Sky Multiple

Lower Multiple

Higher Multiple

High Growth

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FranchiseHighly

Suitable

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Preference

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1 2 3 4 5 6 7



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Factor Two: Buyer Demand

• Higher Demand = Higher Multiple: Certain markets are in higher demand than others. Dealerships in high population growth, low tax, business friendly states, such as Texas and Florida, command multiples several times higher than the published ranges herein. High buyer demand, with limited seller supply, drives up price and may be the biggest determiner of blue sky value in 2021.

• Lower Demand = Lower Multiple: Less demand means less competition and lower blue sky multiples. As an example, there are fewer buyers seeking dealerships in smaller/rural markets, resulting in lower multiples in those markets.

Factor Three: Real Estate

• Image Compliant Facilities & Low Rent = Higher Multiple: Image compliant dealerships with low rent command higher multiples. These dealerships are highly attractive to buyers because they require no additional investment and have an attractive rent factor, thus low fixed expenses and less risk. In general, if a dealership is image compliant and its rent-to-gross profit is below market averages, it is considered to have low rent.

• Real Estate Investment Required and/or High Rent = Lower Multiple: Dealerships that require major real estate investments or have high rent command lower multiples. Most buyers are not looking for real estate development projects. When a dealership requires a significant real estate investment, both known and unknown costs are anticipated. These costs result in increased future rent, which could reduce future earnings. As such, buyers often price non-image compliant franchises or franchises with high rent at lower multiples to consider the risk to future earnings and operation disruption during construction.

Factor Four: Market Vehicle Preference

• Highly Suitable Franchise for a Market = Higher Multiple: Franchises that are highly suitable for a market receive higher multiples. For example, a domestic franchise located in a truck market, such as Colorado or Texas, is more valuable than the average domestic franchise in the US, and thus will likely command a higher multiple. This is because unit sales volume and dealership earnings in those markets are expected to be far above the average domestic franchise.

• Unsuitable Franchise for a Market = Lower Multiple: Franchises that are unsuitable for a market receive lower multiples. For example, a luxury franchise in a small city with few high-income wage earners will be much less valuable than a luxury franchise located in a major metro.

Factor Five: Franchise Market Representation

• Single Point Market = Higher Multiple: A franchise with no like-franchise competition in its market will usually sell at a higher multiple than a franchise which competes with one or more like-franchises. The exception to this rule is if a buyer knows a new point will be added to a market. In that instance, the price premium would be reduced, as the buyer would expect sales and margins to decline when a competitor enters the market.

• Over-Dealered Market = Lower Multiple: Markets with too many like-franchises command much lower multiples. These franchises face higher competition and typically lower margins, thus lower profits.



20

Factor Six: Customer Relations

• High CSI/Dealer Rating/Customer Retention = Higher Multiple: A dealership’s brand and reputation is playing an increasingly important role in franchise value. Dealerships with high customer retention rates and exceptional customer relations will command higher multiples, as the profits associated with those businesses are more sustainable. Kerrigan Advisors believes a dealership’s social media brand will become increasingly important to franchise value in the future.

• Low CSI/Dealer Rating/Customer Retention = Lower Multiple: Dealerships with poor online reputations, coupled with low CSI and SSI, receive lower blue sky multiples. Buyers of these dealerships are concerned about the time and capital required to change customer perceptions. Furthermore, low customer retention results in higher customer acquisition costs and a less efficient business model. With social media’s growing commercial importance, poor dealer ratings will also have an increasingly negative effect on franchise value.

Factor Seven: Revenue Mix

• High Share of Fixed Ops = Higher Multiple: Fixed operations is the highest margin, most consistent revenue stream associated with the dealership business model. Dealerships with strong fixed operations trade at higher multiples because their earnings are more predictable and less cyclical. These dealerships usually have higher UIO counts, above average service retention, excellent CSI/SSI and high fixed absorption rates, resulting in a more attractive business model that is less susceptible to economic cycles.

• Low Share of Fixed Ops = Lower Multiple: Dealerships with weak fixed operations trade at lower multiples. These dealerships’ earnings are reliant on vehicle sales to achieve their profitability and thus more exposed to economic cycles. They also tend to have lower UIO counts, weak service retention and low fixed absorption, thus riskier business models.

Kerrigan Advisors’ blue sky multiples reflect a buyer’s required return on investment in exchange for the perceived risk associated with a franchise’s future income stream. Franchises with higher operational risk command lower multiples, while franchises with lower operational risk command higher multiples (see Chart XXVIII).

Chart XXVIII | Expected Unlevered Return on Investment Based on Blue Sky Multiple

Source: Kerrigan Advisors’ AnalysisNote: Analysis excludes real estate and assumes working capital and fixed assets collectively represent a single turn of earnings. Analysis also assumes there is no change in dealership earnings post-transaction.

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Second Quarter 2021 Blue Sky Multiple Adjustments

Valuation of blue sky is a challenging exercise in 2021 for both buyers and sellers. Kerrigan Advisors finds most buyers are unwilling to apply blue sky multiples to current earnings out of concern for mid-term and long-term earnings sustainability and the risk of margins reverting to historical norms. Rather, buyers are applying blue sky multiples to their expectation for future earnings, often averaging pre-pandemic and post-quarantine performance to estimate future normalized earnings if/when inventory levels rebound.

By contrast, as discussed in the trends section of this report, many sellers are hesitant to sell their franchises based on a valuation that considers pre-pandemic earnings. Most of these sellers are currently achieving record profits and see no end to the industry’s improved profitability. Kerrigan Advisors cautions buyers who are overly conservative in their 2021 valuations as we expect prices to rise in 2022. When the industry moves further away from pre-pandemic periods, and if it proves out the durability of the reengineered business model, dealerships that seem expensive this year may well have an even higher purchase price in 2022.

One rising concern for some buyers and sellers is the dramatic announcements by many OEMs regarding the electrification of their vehicle fleet. While electrification will certainly have an impact on the dealership business model of the future, Kerrigan Advisors expects dealers will adjust successfully and ultimately find ways to increase, rather than decrease, profitability as the industry transforms. That said, whenever profits become more difficult to project, valuations are more challenging to determine. As a result, Kerrigan Advisors will continue to monitor the electrification plans for each OEM and will discuss the potential valuation shifts in future reports, particularly if an OEM changes a dealer’s retail sales compensation method.

“Attempts to predict what the automotive industry will look like in 2030 only serve to highlight how uncertain its future really is.”

Volkswagen Looks Beyond Car Ownership, Even as It SurgesThe Wall Street Journal, July 13, 2021

For the second quarter of 2021, Kerrigan Advisors made no adjustments to our blue sky multiples. The industry’s tremendous profit performance is resulting in stronger blue sky values for most franchises. While the future of inventory availability remains uncertain, most dealers are thriving in a low supply, high demand market. In this environment, most franchises are trading on the higher end of our multiple ranges, when applying them to an average of pre-pandemic and trailing twelve months earnings. The rising tide of industry profits is having the effect of lifting all franchise boats.

“They [OEMs] understand that their costs are down on supporting inventories…this wave is raising all boats.”

Roger Penske, Chairman & CEO, Penske Automotive GroupSecond Quarter 2021 Earnings Call



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While Kerrigan Advisors did not adjust our blue sky multiples this quarter, we did make changes to the franchise outlook for certain franchises due to fluctuations in buyer demand. Specifically, buyer demand for Chrysler Dodge Jeep Ram (CDJR) franchises is on the rise as Stellantis defies the odds with higher vehicle inventory levels, resulting in impressive sales gains (32.4%) in the first half of 2021 and high sales per franchise (787 sales per franchise) in the last twelve months, as of June 2021. As a result, Kerrigan Advisors is upgrading CDJR’s multiple outlook from steady to positive this quarter.

Unlike Ford and General Motors, Stellantis has made no mention of a move away from the push system of inventory management. While many retailers are predicting a new future for days supply, the jury is still out on whether high volume OEMs like Stellantis will have the discipline to limit production as parts supplies improve and competitive forces reemerge. Note: Stellantis’ recent announcement regarding the acquisition of First Investors Financial Services Group may also improve the company’s blue sky multiple, as a supportive captive finance company is key to a successful franchise business model.

Chart XXIX | Estimated Days Supply as of July 31, 2021

Source: Cox Automotive

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Chevrolet Ford CDJR

“I find it difficult to believe that competitive manufacturers are going to build the correct number of cars who have always traditionally overproduced, even though we’ll hope that they’re able to do that, I find it hard to believe that that will occur.”

Bryan DeBoer, President & CEO, Lithia & DrivewaySecond Quarter 2021 Earnings Call



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In addition to improved buyer demand for CDJR, Kerrigan Advisors is also seeing a surprising rise in buyer demand for Nissan in 2021. Nissan franchises are experiencing a dramatic improvement in sales and profitability this year. Kerrigan Advisors finds buyers are once again interested in acquiring Nissan franchises, particularly in strong, high growth markets such as Florida, Texas, and Nevada (Kerrigan Advisors represented on the sale of Fuccillo Nissan of Clearwater, Florida to Morgan Auto Group in August 2021). As a result, we are upgrading Nissan’s multiple outlook this quarter from steady to positive and expect to see an increase in Nissan’s multiples by the end of 2021.

For the quarter, we had one multiple outlook downgrade. Kerrigan Advisors finds buyer demand for Ford dealerships is on the decline, relative to its domestic competitors. Despite higher levels of inventory relative to Chevrolet, Ford sales rose significantly less than its top competitor. Ford has announced plans to shift more of its sales to a build-to-order model. Many dealers are skeptical of this model and the ramifications for future dealer profitability. As a result, Ford’s multiple outlook was downgraded from Steady to Negative this quarter.

One remaining trend Kerrigan Advisors is monitoring is a rise in OEMs exercising their Right of First Refusal to develop locally and regionally dominant dealers. When OEMs exercise their ROFR at an increasing rate, it manipulates the buy/sell market often resulting in lower blue sky multiples for their franchises. Fewer buyers are interested in pursuing a franchise if the risk of a ROFR is high, reducing buyer demand and ultimately price. Our firm will continue to monitor the rate of ROFRs for each franchise and expect to see certain franchises downgraded if a higher percentage of their buy/sells have a ROFR exercised.

This summarizes Kerrigan Advisors’ changes to our blue sky multiple outlook for the second quarter of 2021.

KERRIGAN ADVISORS’ RECENT TRANSACTION ANNOUNCEMENT

“Once again, Kerrigan Advisors demonstrated their strategic expertise and comprehensive knowledge of our market with another seamless transaction.”

Billy Fuccillo, Jr.President of Fuccillo Automotive Group

Represented on the sale of

toCLEARWATER, FL


August 2021



24

Franchise Buyer Demand

Change in SalesFirst Half

2021 vs. 2020

Sales Per Franchise

TTM Jun-2021

Average Dealership Profitability

Last Three Years

Estimated Days Supply as of

Aug. 2021

Buy/Sell Market Share First Half 2021

Moody’s Credit Rating

Multiple Outlook

High +44.1% 1,765 Consistently High 20 10.4% A1 Positive

High +38.9% 1,335 Consistently High 20 2.3% A3 Steady

High +20.3% 1,054 Consistently High 23 5.2% Not Rated Positive

Improving +12.0% 622 Variable 29 10.1% Baa3 Steady

Average +4.6% 655 Variable 43 11.4% Ba2 Negative

Improving +17.4% 787 Variable 55 10.1% Baa3 Positive




Improving +45.8% 617 Variable 35 2.6% A3 Steady

Improving +46.8% 620 Variable 26 1.3% Not Rated Steady


Chart XXX | Kerrigan Advisors’ Second Quarter 2021 Blue Sky Multiples & Analysis: Non-Luxury

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High 7.00 6.50 6.50 4.50 4.50 4.50 4.00 4.00 3.50 3.50 3.50 3.00Average 6.50 5.75 5.75 4.13 4.00 4.00 3.50 3.50 3.00 3.00 3.00 2.63Low 6.00 5.00 5.00 3.75 3.50 3.50 3.00 3.00 2.50 2.50 2.50 2.25

Source: Kerrigan Advisors’ Research & Analysis, Automotive News, Moody’s, The Banks Report, Cox Automotive



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Chart XXXI | Kerrigan Advisors’ Second Quarter 2021 Blue Sky Multiples & Analysis: Luxury

Source: Kerrigan Advisors’ Research & Analysis, Automotive News, Moody’s, The Banks Report, Cox Automotive

9.00 8.75 8.75 8.50 8.00 8.00

4.00 3.50 3.50 3.50

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Land Rover Volvo Acura Cadillac Lincoln Infiniti

High 9.00 8.75 8.75 8.50 8.00 8.00 4.00 3.50 3.50 3.50 3.00Average 8.25 7.88 7.88 7.75 7.50 7.38 3.50 3.25 3.00 3.00 2.50Low 7.50 7.00 7.00 7.00 7.00 6.75 3.00 3.00 2.50 2.50 2.00

Franchise Buyer Demand

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Estimated Days Supply as of

Aug. 2021

Buy/Sell Market Share First Half 2021

Moody's Credit Rating

Multiple Outlook

High +50.2% 362 Highest in Industry 41 1.0% A3 Steady

High +25.3% 947 Consistently High 33 2.3% A3 Steady

High +47.7% 1,341 Consistently High 24 2.3% A1 Steady

High +52.2% 964 Consistently High 30 1.3% A2 Steady

Average +59.9% 766 Variable 36 2.6% A3 Negative

High LR +12.3% Jag -10.8%

LR 447 Jag 114 Consistently High LR: 28

Jag: 37 1.0% B1 Steady

Average +47.4% 465 Improving 47 1.3% A2 Steady

Improving +57.9% 627 Consistently Low 30 0.7% A3 Steady

Improving +36.9% 171 Consistently Low 40 2.6% Baa3 Positive

Low +4.4% 144 Consistently Low 52 2.0% Ba2 Steady

Low -11.3% 368 Consistently Low 59 1.0% Baa3 Negative



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In closing, we hope The Blue Sky Report® is helpful to you as you lead your organizations through this historic period in auto retail. Please do not hesitate to contact our firm if you have any questions regarding the information presented herein or if we can assist you in any way.

Kerrigan Advisors is a leading advisory firm to growing dealership groups across the US, working as a thought partner to owners as they consider their expansion strategies. Our firm’s mission is to add value to dealers as they grow, operate and monetize their businesses. We are honored to be the leading sell-side advisor to owners of higher value dealerships and dealership groups nationwide. Our customized sales approach is extremely successful and has led to the highest sale price per transaction of any firm in the industry. In the last five years, we have advised on many of the most valuable transactions in the industry, including more Top 150 Dealership Groups than any other firm.

Kerrigan Advisors has had the honor of working with auto retail’s leading dealers in determining the right time to sell and the most appropriate buyer for their dealerships. We do not take listings, or maintain an inventory of sell-side clients, rather we focus on a select number of higher value transactions, devoting our team’s time and energy to ensure the sale process is a success. In our view, dealerships are far too valuable to be advised any other way.

We look forward to scheduling a confidential conversation about how we can assist you as you navigate the ever-changing auto retail environment.

No Guaranty or Warranty of Accuracy or Completeness

Kerrigan Advisors takes great care in ensuring the accuracy and reliability of the information provided in this report. However, Kerrigan Advisors cannot guaranty the accuracy of all

information provided by third parties. While Kerrigan Advisors has obtained information from sources it believes to be reliable, Kerrigan Advisors undertakes no duty of due diligence or

independent verification of any information it receives. Therefore, Kerrigan Advisors takes no responsibility or liability for the accuracy, content, completeness, legality, or reliability of the

information contained in this report. This report represents the results of past performance and is not a reliable indication of future performance. The content in this report is provided

“as-is” and no warranties, promises and/or representations of any kind, expressed or implied, are given as to the nature, standard, accuracy or reliability of the information provided in

this report nor to the suitability or reliability of the information to your particular circumstances.

Limitation on Liability

Kerrigan Advisors expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this report. Kerrigan Ad-

visors assumes no liability as regards to any investment, divestment or retention decision taken on the basis of this report. In no event will Kerrigan Advisors be liable for direct, indirect

or incidental, special or consequential damages resulting from this report.

No Client Relationship or Investment Advice

This report has been prepared solely for informational purposes. Your receipt of this report does not create a client-advisor relationship, or any relationship, between you and Kerrigan

Advisors. This report is intended only to provide general information and shall not be construed as the basis for any investment decision. For avoidance of doubt, under no circumstanc-

es shall any of the information provided in this report be construed as a recommendation to invest, buy or sell or investment advice of any kind. Before acting on any information in this

report, Kerrigan Advisors recommends you consult your own financial and other advisors.

Use of Report

The content contained herein is proprietary to Kerrigan Advisors. The content shall not be used for any unlawful or unauthorized purposes and may not be copied or distributed without

the prior written consent of Kerrigan Advisors.

Erin Kerrigan, Founder & Manager Director

[email protected](949) 439-6768

Ryan Kerrigan, Managing Director

[email protected](949) 728-8849



27

KERRIGAN ADVISORS’ UPCOMING SPEAKING EVENTS

Houston Auto Dealers Association Luncheon

October 21, 2021www.HoustonCarDealers.com

AICPA Auto Dealership ConferenceDrivers of Today’s Buy/Sell Market

and Record Blue Sky ValuesOctober 26, 2021www.AICPA.org

NADA WebinarHow to Value Your Dealership in 2021

October 20, 2021www.NADA.org

AIADA WebinarThe Record Setting Buy/Sell Market of 2021

and Valuation Expectations for 2022September 21, 2021

www.AIADA.org

NAADA Fall MeetingDealership Valuation & the M&A Landscape

November 2, 2021www.AutoDealerAdvisors.com

NAMAD ConferenceDecember 7-10, 2021

Miami, Floridawww.NAMAD.org

AIADA WebinarWill the 2022 Buy/Sell Market be as

Active as 2021?December 14, 2021

www.AIADA.org

NADA Show Dealer Learning LabThe Art (and Science) of Dealership

Valuation Post-CovidMarch 10-12, 2022

Las Vegas, NVwww.NADA.org

Every Kerrigan Advisors’ Client is Referenceable

Ed Tonkin, 2010 NADA ChairmanCo-President of Tonkin Family of Dealerships, 88th Largest Dealership Group

The Kerrigan team identified the right buyer for our family’s business. Kerrigan Advisors’ responsiveness, client service and deep expertise was a key component to the success of this transition.

Erin Kerrigan’s expertise – from her deep understanding of the buy/sell market, transactions and dealership valuations to the OEM approval process – helped make our sale as smooth as possible.

Steve BloomerPresident of Village Automotive Group,Lexus of Wayzata, Lexus of Maplewood,Chevrolet of Wayzata

TRANSACTION & VALUATION EXPERTSWe are considered the industry authority on

blue sky valuations and multiples.

HIGH LEVEL OF CLIENT SERVICEWe treat our client’s business as if

it is our own.

LICENSED SELL-SIDE ADVISOROur firm’s managing directors are fully-licensed

with FINRA and the SEC.

ENGAGED CLIENTS, NOT LISTINGSOur commitment is to our sell-side clients and

their objectives, not the transaction.

TRANSACTION TERMS DATABASE We provide our clients and their attorneys with

a distinct negotiating advantage.

HIGHLY-SPECIALIZED TEAMOur team of certified professionals is focused

exclusively on supporting our clients.

Distinct Advantages of Working with Kerrigan AdvisorsNo other firm has the breadth of skills, experience and client support services to work with dealers to successfully grow or sell their businesses.

Sold to Lithia MotorsOrlando, FL | February 2021

Sold to Lithia MotorsSanford, FL | February 2021

Sold to Ken Garff Automotive GroupSurprise, AZ | September 2021

Sold to Ken Garff Automotive GroupPhoenix, AZ | August 2021

Sold to Sonic AutomotiveGrand Junction, CO | July 2021

Sold to Ghreiwati Auto GroupValencia, CA | June 2021

Sold to Ghreiwati Auto GroupCorona, CA | January 2021

Sold to LMP Automotive & Morgan Auto Group

Cape Coral & Port Charlotte, FL | March 2021Clearwater, FL | August 2021

Auto Retail’s Leading Sell-Side AdvisorKerrigan Advisors’ 2021 Transactions

If you would like to learn more about our firm, please contact Erin Kerrigan or Ryan Kerrigan at

(775) 993-3600 or visit www.KerriganAdvisors.com.

© 2020 Kerrigan Advisors. All rights reserved. Securities offered through Bridge Capital Associates, Inc., Member FINRA, SIPC

Professional. Confidential. Proven.www.KerriganAdvisors.com


At Kerrigan Advisors, we pride ourselves on our singular focus—working with dealers and their families throughout the US to enhance the value of their enterprise. From growth through exit, our firm supports generations of dealers through the lifecycle of owning and operating their businesses. We hope for the opportunity to work with you as you chart your course in the evolving auto retail landscape.

A Leading Sell-Side Advisor andThought Partner to Auto Dealers Nationwide

ERIN KERRIGANFounder & Managing Director

RYAN KERRIGANManaging Director

MERCEDES HENDRICKSVice President

GABE ROBLETOVice President

PHIL BRADYSenior Advisor

MARIE BRASHEARSSenior Associate

PIERRE DEMPSEYSenior Associate

KJELL WOLKERAssociate

JUAN LACOUTUREAnalyst

Second Quarter 2021 September 2021

Documents

Transcript of Second Quarter 2021 September 2021