Auto Dealer Valuation Insights

May 24, 2021 Mergers, Acquisitions, & Divestitures Special Topics Valuation Issues

Valuation and M&A Trends in the Auto Dealer Industry

Full Speed Ahead or Partly Cloudy?

A few weeks ago, I sat down with Kevin Nill of Haig Partners to discuss trends in the auto dealer industry and the release of their Fourth Quarter 2020 Haig Report. Specifically, I wanted to focus on the unique conditions impacting the industry, and also the changing methodology that buyers are utilizing to assess dealership values. Haig Partners is a leading investment banking firm that focuses on buy/sell transactions in the auto dealer industry, along with other transportation segments. As readers in this space are familiar, Haig Partners also publishes Blue Sky multiples for various auto manufacturers based on their observations and data from participating in transactions in this industry.

May 17, 2021 Public Auto Dealers Valuation Issues

Q1 2021 Earnings Calls

Improved Profitability, Online Tools and Market Share, and High Valuations

Stimulus supported demand for vehicles and significant chip-related supply disruptions have improved profitability while public auto dealers also see fixed operations improving.

May 10, 2021 SAAR

April 2021 SAAR

SAAR has continued its impressive run in 2021, increasing for the second straight month to 18.5 million. This is a 3.1% increase from March 2021.  As previously mentioned, comparing spring 2021 SAAR to 2020 does not hold much merit, especially in April which experienced the weakest sales of the pandemic in 2020. Compared to April 2019, a better comparison in our view, April 2021 is up 12.1%. But the industry faces headwinds: the shortage of computer chips. In this post, we break down what all this might mean.

May 3, 2021 Special Topics

Year-End 2020 Auto Dealer Industry Newsletter Release

We are pleased to release our latest edition of VALUE FOCUS:  AUTO DEALER INDUSTRY NEWSLETTER. The newsletter features a commentary on industry data from year-end 2020.  Additionally, this edition includes two timely articles: “The Seven Factors of a Highly Effective Buy-Sell Agreement for Auto Dealerships” and “The Chip Shortage Is Making It Feel Like 2020 Again.” Download this latest issue.

April 23, 2021 Special Topics Valuation Issues

Dealership Working Capital

A Cautionary Tale Against Rigid Comparisons

Most transactions involving auto dealerships are structured as asset sales, so dealer principals may take this mindset when considering a business valuation. Generally, the assets acquired by a buyer include new vehicles, used vehicles, parts, fixed assets, and the blue sky or intangible value of the franchise. However, the inventory (predominantly new and used vehicles) is typically financed 100% through short-term lines of credit referred to as floor plan. If the largest portion of current assets are offset with corresponding short-term debt and other working capital items such as cash are not involved in a dealership transaction, a dealer might wonder why does working capital matter?

April 19, 2021 Blue Sky Special Topics Valuation Issues

Valuation Implications of a 28% Corporate Tax Rate on Blue Sky Multiples

Will Dealerships Become Less Valuable if Tax Rates Rise?

In the early stages of the Biden administration, much of the tax-related discussion surrounding the auto industry has been related to credits for electric vehicle manufacturing and investment in EV infrastructure. In this post, we discuss the valuation implications for auto dealers of the proposed increase in the federal corporate tax rate from 21% to 28%.

April 13, 2021 COVID-19 Coverage SAAR Special Topics

March 2021 SAAR

After a tumultuous February due to weather conditions, March SAAR has bounced back with a vengeance.  March SAAR of 17.75 million units is the second-highest of all time for the month, just shy of March 2000.  There are two main factors driving this increase.  While the winter storms had a negative impact on February SAAR, it likely caused pent-up demand that helped drive sales in March. Beyond simple delays, flooding forced some to replace damaged vehicles. Secondly, the Biden administration passed a Covid-19 stimulus bill at the beginning of March, and $1,400 paychecks hit many Americans’ wallets. This influx of cash may have also spurred a massive increase in vehicle sales.

April 6, 2021 Blue Sky Mergers, Acquisitions, & Divestitures

Analyzing the Relationship of Rent and Real Estate Values in Dealership Acquisitions

The Opposite, Break-Even or Something In-Between?

The relationship between rent and fair market value of the real estate has an impact on the components of an auto dealer acquisition. While the impacts may be opposite and felt on both sides of the two entities, the impact on the real estate can have a greater effect given lower capitalization rates and/or higher capitalization factors than most implied blue sky multiples. We provide a discussion of the topic with an example in this post.

March 29, 2021 Blue Sky COVID-19 Coverage Mergers, Acquisitions, & Divestitures

What’s in a Multiple?

Blue Sky Multiples Improved in 2020 After a Rocky Start, and Buyers Weigh Multiple Years of Earnings

In this post, we present recent Blue Sky multiples along with the reporting of profitability moving from the last 12 months to the last 3 years. According to Haig Partners, buyers have historically focused on adjusted profits from the last 12 months, which has been viewed as the best indication of expectations for the next year. Throughout most of 2020, Haig’s reported Blue Sky multiples were applied to 2019 earnings as these were viewed as the best indication of a dealership’s “run rate” prior to any COVID impact. When profitability improved and uncertainty began to decline around June 2020, multiples applied on these 2019 earnings rebounded. Now into 2021, Haig reports that buyers are using a three-year average of adjusted profits from 2018 through 2020 as the best prediction of future profits.

March 22, 2021 Valuation Issues

Six Events That Trigger the Need for a Valuation

Auto dealers, like most business owners, are focused on many aspects of their business:  daily operations, strategic vision, competition, industry conditions, the state of the economy, etc.  It is less common for auto dealers to be concerned if/when their business might need to be valued.  Often, they are made aware of the need for these services by their trusted advisors including attorneys, financial planners, accountants, etc.

What are common events that trigger the need for a valuation for an auto dealership?