Record profits drive a surge of M&A activity among auto dealerships

Morgan Automotive Group, to quote The Eagles, lived “life in the fast lane” in 2020-21 in terms of revenue growth. According to company spokesman Tanner Boyle, the firm’s revenue jumped from $3.22 billion in 2020 to $5.41 billion last year, up 68%. It ended 2021 with 4,593 employees.

Part of the Tampa company’s growth can be attributed to its aggressive M&A strategy. After its latest acquisitions, in mid-May, Morgan Automotive now boasts 55 dealerships, including 23 in the Tampa Bay region.

As of Jan. 4, 2019, the company owned and operated 32 dealerships, meaning its footprint has increased by nearly 72% over the past three years — a remarkable run, especially considering the economic disruption that accompanied the COVID-19 pandemic. Coupled with an 18% increase in car sales from 2020 to 2021, that makes Morgan the eighth-largest dealership group in the United States, according to trade magazine Automotive News.

Good times are rolling not just for Morgan, but hundreds of car dealerships nationwide. According to Kerrigan Advisors, a company that specializes in dealership valuation and buy/sell trends, 320 dealerships changed hands from June 2020 to June 2021, and dealership profits, in the first half of 2021, rose to $1.96 million — 164% more than the industry average between 2015 and 2019.

“Today’s activity level is a byproduct of the industry’s explosive profitability,” states Erin Kerrigan, founder and managing director of Kerrigan Advisors, in a news release.

Because of a semiconductor chip shortage that affected the supply of new vehicles, used cars soared in value during the pandemic, with prices rising by nearly 30% from January 2020 to June 2021, Kerrigan Advisors found. That led to a 79% increase in gross profit per used vehicle sale.

“Most dealers are buyers, not sellers, and few are willing to accept the status quo,” states Ryan Kerrigan, managing director of Kerrigan Advisors, in the release. “Today’s dealers, both private and public, want to grow and have tremendous access to capital to do so. Few alternative investments provide the risk-adjusted returns available from dealership acquisitions.”