SAN FRANCISCO -

As new and used sales have spiked through the first half of this year, it seems dealership owners are less likely to sell their respective business — anticipating further growth.

According to the Presidio Merchant Partners LLC “Automotive Retail M&A Market Report”  for the first half of 2012, after completing $229 million in U.S. dealership acquisitions in the first half of 2011, public companies spent just $103 million to acquire U.S. dealerships in the first six months of 2012, marking a 55-percent decline.

Acquisition activity by private dealers also appears to have slowed, officials added.

And though dealers may be holding on to their businesses as sales soar, buyers seem to be focusing more on the “stagnant” economy, according to the report.

“The industry views the drop in activity as a fundamental disagreement on price.  Buyers see economic and political uncertainty and better uses for their capital, while sellers are experiencing record profits and anticipating continued growth,” the report stated.

That said, dealership owners have good reason for their optimistic outlooks; “private dealerships appear to be on their way to recording all-time high levels of profitability, according to data provided by NADA, and the value of large dealership groups has increased by an estimated 23 percent from 2006,” the report stated.

Further commenting on the current slowing of M&A activity in the market, Alan Haig, managing director and head of Presidio’s automotive retail services group, said,  “We are surprised at the decline, but in light of political and economic risks we understand why buyers are being a little hesitant.

“But we do see transaction volume picking up in the foreseeable future as the outlook for auto sales is generally good and the ownership base for dealers is continuing to age with many dealers at or above retirement age. We think the next few years will be active ones,” he continued.

In fact, due to fact that “dealers are aging and many will want to sell their companies in the next few years,” as well as what the report is calling “pent-up demand,” M&A activity may spike in the coming years.

“Since dealership sales activity has been below normal levels since the beginning of the recession, there is ‘pent up demand to sell’ that may lead to higher transaction volumes in the future,” officials added.

Lastly, the report touched on one more trend that may be contributing to low M&A activity within the industry.

“Industry multiples have begun to contract as the potential for earnings growth slows. Auto group investors valued public retailers at 12.2x Normalized Earnings per Share in June of 2012, down from 18.2x in June 2011, a 33 percent decline,” the report explained, citing Capital IQ.

And as these multiples fall, “public companies are less likely to pursue acquisitions in the U.S.,” officials added.

In fact, the report said that  over the past decade, 28 percent of the cash flow from public retailers was spent on U.S. acquisitions; over the past six months, just nine percent went towards U.S. acquisitions while 51 percent was used to buy back company stock.

“Public retailers are actually shrinking in size, with the total number of dealerships owned by public companies falling from a peak of 884 in 2004 to 744 in 2011,” officials continued, citing statistics from Automotive News.

And this trend is not exclusive to public companies.

Multiples on private dealerships appear to also have fallen for many franchises, as buyers are more concerned with risk than earlier in 2012, and are finding other uses for capital, the report stated.

All that aside, though acquisitions have declined, “trends remain favorable for increasing auto sales due to aging vehicles and easy credit for buyers, with most experts predicting auto sales in 2012 increasing 9–13 percent over 2011,” officials concluded.

To view the full report, see here.