mercer capital's value focus: equipment dealer industry | mid-year 2015
TRANSCRIPT
VALUE FOCUSEquipment Dealer Industry
www.mercercapital.com
Mid-Year 2015
General Overview 1
Agricultural Equipment Dealers 2
Construction Equipment Dealers 2
Material Handling Dealers 3
2015 Mid-Year Update 4
Macroeconomic Overview 5
Bellwether Stocks and Industry Participants 10
Equipment Dealership Valuation Considerations 12
About Mercer Capital 13
Erickson Partners Merges with Mercer Capital 14
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 1 www.mercercapital.com
General Overview
The equipment dealership sector consists primarily of closely held,
private entities that are contractually allied to a primary original equip-
ment manufacturer (“OEM”). The business model of most equipment
dealers is relatively similar to those of other dealership models
including the automotive, trucking, materials handling and vocational
segments. Dealers are typically granted territory (or branch locations)
in or from which to sell and service an OEM’s products. Dealers
employ organizational structures and operating systems mandated
by their respective OEMs. OEMs also exert significant influence over
the ownership and management structures of their dealers and work
actively in the integration of their dealer networks.
Generally speaking, equipment dealer performance corresponds to
general economic activity and territory traits. The inexorable growth
of population drives demand for resources and commodities (energy,
agriculture and basic materials), burdens and depreciates transpor-
tation and power generation infrastructures, and drives the need for
housing and general construction.
More than just wholesalers, equipment dealers are the channel
through which their respective OEMs penetrate markets, providing
territory development, sales, leasing, rental, and parts & service to
commercial, contractor, industrial and governmental customers,
usually within an exclusive geographic area. Accordingly, whether
the dealer’s equipment concentration is agricultural, construction,
mining, transportation, material handling, or otherwise, the economic
characteristics and commodity concentrations of each market dictate
the product focus of each dealer regarding core line mix as well the
dealer’s complimentary and adjacent OEM portfolio. Most OEMs
segregate their product lines by target market, using dealerships
specifically for each product segment (construction, agriculture, small
engine, etc.) although many dealers, such as those in the Caterpillar
system, have more turnkey products offerings. Each dealer’s primary
OEM exerts significant influence regarding the dealer’s other brand
offerings because brand purity is a core mandate for most OEMs as
is a well-crafted assemblage of portfolio offerings for the dealer’s
market area.
The largest and most recognizable OEMs are world-wide operators
whose manufacturing facilities and end markets span the globe.
Dealership models for the large OEMs vary significantly by the deal-
er’s native market and the OEMs overall strategy. For example, at
year end 2014, Caterpillar’s 48 U.S. dealers were all closely held,
private entities whose operations were conducted in geographically
contiguous territories. In contrast, two of the Canada-based dealers
are publicly traded, one of these has multi-national operations (and is
the world’s largest CAT dealer) and the other has a more diverse and
industrial focused revenue stream.
The following table provides perspective on the scope of equipment
offerings typically found in an equipment dealer’s portfolio. Equip-
ment dealers can be highly specialized regarding their product
offerings, as may be the case for dealers of heavy lift machines and
cranes, or may have offerings that cover a wide variety of market
needs as is typical of construction equipment dealers. Many dealers
carry products outside their core OEM product categories as a way of
diversifying their revenue streams to benefit from territory opportuni-
ties and market trends as well as to mitigate the effects of seasonality,
industry demand, customer concentration, and other downside
exposures related to the core OEM product focus. Large equipment
dealers generally fall into one of several industry groupings: construc-
tion and related; agriculture; and material handling. These dealers
require relatively specialized capabilities and knowledge to service
their customers. Differentiation and diversity of product mix due to
territory is more prominent for dealers in the construction industry
as the prevalence of forestry, mining, energy, and other resources
varies significantly by geographic region. Material handling dealers
are typically more homogenous in their product offerings, although
the capabilities of lift-trucks can vary greatly depending on a given
territory’s industrial, transportation and distribution infrastructure.
Markets and Industries Served
Agriculture Forestry Material Handling Quarry, Aggregates & Cement
Construction Governmental & Defense Mining Remanufacturing
Customer Services Insurance OEM Solutions Rental
Demolition & Scrap Recycling Landscaping Oil & Gas Safety
Electric Power Locomotive & Railway Paving Training
Generation Maintenance & Repair Pipeline Technology & Solutions
Financing Marine Power Plants Waste
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 2 www.mercercapital.com
Agricultural Equipment Dealers 1
Construction Equipment Dealers 2
Agricultural equipment is used primarily for the production of food,
fiber, feed grain and feedstock for renewable energy. Certain
equipment is purchased for home and garden applications, and
maintenance of commercial, residential and government proper-
ties. Deere & Company (DE), CNH Industrial N.V. (CNH) and
AGCO Corporation (AGCO) are the largest global manufacturers
of agricultural equipment and supply a full line of equipment
and parts that address the primary machinery requirements
of farmers. In addition to the major manufacturers, numerous
specialty and short-line manufacturers produce equipment that
addresses regional and niche requirements of both corporate and
hobby farmers. Agricultural equipment manufacturers typically
grant dealers in the U.S. authorized store locations from which to
sell and service their products.
There are many factors that influence demand for agricultural
equipment, parts and repair and maintenance services, including
commodity markets, interest rates, government policies, tax pol-
icies, weather and general economic conditions. Any of these
conditions can change materially in a short time period, creating
volatility in demand for products and services. Federal legislation,
such as the recently enacted Farm Bill, attempts to stabilize the
agricultural industry through various policies including (i) com-
modity programs consisting of direct, counter-cyclical and price
support payments to farmers; (ii) conservation programs; (iii) crop
insurance programs; and (iv) disaster relief programs. These var-
ious federal policies attempt to reduce financial volatility and help
ensure that farmers operate their farms and equipment during
economic down cycles, thus stabilizing demand for equipment,
replacement parts, and repair and maintenance services.
Construction equipment is purchased primarily for commercial, res-
idential and infrastructure construction, as well as for demolition,
maintenance, mining, energy production and forestry operations.
The market for construction equipment is segmented across multiple
categories including earth moving, lifting, light industrial, asphalt &
paving, and concrete and aggregate equipment. As in the agricul-
tural equipment market, sales and service of construction equipment
in the U.S. is executed primarily by manufacturer authorized dealers;
however, manufacturers’ dealership agreements in the construction
industry typically assign exclusive distribution territories.
Construction machinery is generally divided into “heavy” and
“light” subgroups. Heavy machinery includes large wheel loaders,
large tracked excavators, cranes, crawler dozers, motor graders
and articulated haul trucks. Light machinery includes backhoe
landscape tractors, forklifts, compact excavators and skid
steers. Heavy machinery is generally purchased by construction
companies, municipalities, local governments, rental fleet owners,
quarrying and mining companies, waste management companies
and forestry-related organizations. Typically, light machinery is
purchased by contractors, rental fleet owners, landscapers, logistics
companies, farmers and recreational users. Although demand
for construction equipment is affected by weather and seasonal
factors, it is usually less susceptible to seasonal changes than the
agricultural equipment industry.
Demand for construction equipment is driven by several factors,
including (i) public spending on roads, highways, sewer and water
projects, and other public works projects; (ii) public and private
expenditures for the energy and mining industries, which is driven
in part by demand for fossil fuels, metals and other commodities;
and (iii) general economic and market conditions of the construction
sector for residential, commercial and industrial development.
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 3 www.mercercapital.com
Material Handling Dealers
The material handling industry encompasses the equipment, sys-
tems and technology solutions for managing, transporting and
storing a wide variety of bulk materials, processed goods and final
products. There are numerous diverse OEMs that manufacture lift
trucks, racking systems and mechanical conveyors that comprise the
industry. Material handling equipment is a vital aspect of industry
supply chains and distribution channels. Material handling equip-
ment is used by virtually all sectors and industries to manage goods
and materials through the processing, manufacturing, staging, and
transportation phases in route to final markets.
Key players in the lift truck segment of the industry include Toyota,
Linde, Hyster-Yale, Mitsubishi, and Crown. Lift trucks are the principal
product of the industry’s dealer network. OEMs and their underlying
brands and products are differentiated by size and load capacity, fuel
type, and wheel type. For example, machines operated in close,
environmentally contained facilities are typically powered by electric
batteries, while large machines operating in open environments may be
diesel powered in order to manage large and/or heavy loads. Demand
for material handling equipment is driven by several factors but is prin-
cipally correlated to the overall economy and the movement of goods
and materials through industrial, commercial and consumer markets.
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 4 www.mercercapital.com
2015 Mid-Year Update
Despite gains in construction through the first half of 2015, many
equipment dealers face challenges for the balance of 2015. Of
course, dealer performance is highly regionalized; however, certain
aspects of the economy tend to influence performance across many
markets. Oil and gas prices remain depressed by historical stan-
dards and agricultural commodity prices remain well below those of
the prior several years. Whether the commodity is grown from seed
stock or harvested from prehistoric life in the form of fossil fuels,
lower prices for commodities have a dampening effect on the buying
power of contractors and farmers. With a depressed energy sector
and low agricultural commodity prices, construction activity is lim-
ited in its ability to lift the equipment dealer industry.
Construction markets generally improved in the first half of
2015 with total construction value for the LTM at June 2015 approx-
imately 4% higher than 2014. Bright spots included manufacturing
(up almost 30%), commercial (up 16%), lodging and office (each
up 13%-14%). Power generation investment was down almost
13% while residential construction was up only 1.1% for the same
period. Highway and street construction increased 2.2%, but given
the disrepair of transportation infrastructure, current investment is
contributing to an accumulating backlog of needs. Despite the per-
sistence and potential paradigm of current motor fuel pricing, there
has been no legislative movement on funding measures.
Stock prices for primary OEMs mixed in the first half of 2015.
Caterpillar (CAT) saw its shares decline 7.3% in the first half of 2015
while John Deere stock increased 9.7%. CAT’s Q2 filings cited a
weak first quarter with some improvement in the second quarter.
Guidance for the balance of 2015 suggested a modest miss on
target 2015 revenue, thus the focus of efforts from CAT is one of
dealer enhancement (with the “Across the Table” initiative) and
expense management. In addition to general economic conditions,
the strength of the US dollar is contributing to lower revenue as over-
seas markets lack buying power and many world markets continue
with stagnant GDP performance. John Deere sounded similar con-
cerns with its core agricultural machinery sales down 20% so far in
fiscal 2015.
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 5 www.mercercapital.com
Macroeconomic Overview
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GD
P (in Billions)
Ann
ualiz
ed R
eal G
row
th R
ate
Quarterly Annualized Real Growth Rate Annual Real Growth Rate
GDP (Current Dollars) GDP (Chained 2009 Dollars)
Source: Bureau of Economic Analysis
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$250
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$750
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$1,250
$1,500
-20.0%
-15.0%
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-5.0%
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5.0%
10.0%
2007
Q2 Q4 Q1 Q3
2009
Q2 Q4 Q1 Q3
2011
Q2 Q4 Q1 Q3
2013
Q2 Q4 Q1 Q3
2015
GD
P (in Billions)
Ann
ualiz
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eal G
row
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ate
Quarterly Annualized Real Growth Rate Annual Real Growth Rate GDP (Total Construction)
GDP (Residential Construction) GDP (Non-Residential Construction) GDP (Total Highway & Street)
Source: Federal Reserve Bank of St. Louis
The real Gross Domestic Product
(GDP) increased at an annualized rate
of 2.3% during the second quarter of
2015. Performance was slightly lower
than economists’ expectations of 2.6%,
though growth is expected to accel-
erate in the second half of 2015. GDP
growth was driven largely by consumer
spending, which increased 2.9% in
the second quarter of 2015, relative to
increases of 4.3% and 1.8% in the fourth
quarter of 2014 and the first quarter
of 2015, respectively. Durable goods
growth increased 7.3%, following an
increase of 6.1% in the fourth quarter of
2014 and an increase of 2.0% in the first
quarter of 2015.
Total construction spending increased
12% year over year to a seasonally
adjusted annual rate of $1.1 billion in
June 2015. Private construction fell
0.5% over the revised May estimate,
while private residential construction
increased 0.4% and private non-
residential construction increased
1.3% over the prior month. Public
construction also saw an increase
month over month, growing 1.6%
over May 2015.3 Construction activity
is expected to continue increasing
throughout 2015 due to rising
construction of manufacturing facilities,
and greater spending on offices, hotels,
and retail facilities.4
Gross Domestic Product
Construction Gross Domestic Product
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 6 www.mercercapital.com
Macroeconomic Overview (cont.)
Annual Value of Construction
(Millions of dollars. Details may not add to totals due to rounding.)
Annual Value of Construction Put in Place 2010-6/30/2015 % Change 2014-
LTM 6/152010 2011 2012 2013 2014LTM
6/30/2015
Total Construction $806,040 $788,343 $861,245 $910,764 $960,586 $997,964 3.9%
Residential $249,112 $252,657 $286,847 $342,203 $354,222 $357,948 1.1%
Nonresidential $556,928 $535,686 $574,399 $568,561 $606,363 $640,019 5.6%
Lodging 11,635 9,129 10,836 13,585 16,107 18,180 12.9%
Office 37,850 36,011 37,800 37,620 44,630 50,678 13.6%
Commercial 40,100 42,816 47,335 50,992 57,276 66,407 15.9%
Health care 39,344 40,204 42,544 41,484 38,979 39,160 0.5%
Educational 88,405 84,985 84,672 77,996 78,429 80,870 3.1%
Religious 5,288 4,239 3,846 3,678 3,566 3,307 -7.3%
Public safety 11,153 10,407 10,431 9,652 9,334 9,160 -1.9%
Amusement and recreation 16,943 15,995 15,480 15,513 16,672 18,707 12.2%
Transportation 38,340 34,737 37,862 39,731 41,865 43,665 4.3%
Communication 17,730 17,685 16,165 17,294 16,075 17,460 8.6%
Power 77,945 75,185 97,434 90,639 100,752 88,086 -12.6%
Highway and street 82,529 79,322 80,546 81,212 84,013 85,886 2.2%
Sewage and waste disposal 25,991 22,710 22,261 21,676 22,691 24,834 9.4%
Water supply 15,322 14,163 13,218 13,515 12,941 13,587 5.0%
Conservation and development 7,172 7,538 6,228 6,028 7,509 7,946 5.8%
Manufacturing 41,178 40,559 47,741 47,945 55,526 72,090 29.8%
Total Private Construction $502,074 $501,936 $581,935 $641,146 $686,647 $715,860 4.3%
Residential 238,819 244,133 280,574 336,209 349,017 352,185 0.9%
Nonresidential 263,255 257,803 301,360 304,937 337,630 363,677 7.7%
Total Public Construction $303,966 $286,407 $279,311 $269,618 $273,939 $282,104 3.0%
Residential 10,294 8,524 6,272 5,994 5,206 5,763 10.7%
Nonresidential 293,672 277,883 273,038 263,624 268,733 276,343 2.8%
Source: US Census Bureau
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 7 www.mercercapital.com
Macroeconomic Overview (cont.)
According to the U.S. Census Bureau,
new privately owned housing starts were
at a seasonally adjusted annualized rate
of 1,174,000 units in June 2015, 9.8%
above the revised May rate of 1,069,000
units, and 26.6% above the June 2014
level. The seasonally adjusted annual
rate of private housing units authorized
by building permits (considered the best
indicator of future housing starts) was
1,343,000 units in June 2015, 7.4% above
the revised May estimate of 1,250,000,
and 30.0% above the June 2014 level.
The June 2015 data indicates that the
housing market recovery continues,
though growing inventory could be a sign
of trouble ahead. Slow wage growth and
higher interest rates also pose ongoing
risks to the housing market.
0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0 2.1 2.2 2.3 2.4
Private Housing Starts Single Family Starts Source: U.S. Census Bureau Note: Permits at a given date are generally a leading indicator of future starts. Beginning with January 2004, building permit data reflects the change to the 20,000 place series.
Private Housing
Single Family Housing
Housing Starts
(millions of units)
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 8 www.mercercapital.com
Macroeconomic Overview (cont.)
Single family housing starts declined in
June, as most of the gains in starts and
permits were in multifamily construc-
tion. However, homebuilder confidence
has continued to grow, as demand for
single-family housing is expected to
increase as the labor market tightens.
The largest increase in single-family
permits year over year was in the South,
with a 37% increase from June 2014 to
June 2015. The largest decrease over
the same period was in the Northeast,
with a 16% decline in housing starts in
June 2015.
Regional Housing Starts – Single Family
June 2015
Housing starts in June 2015 rose 9.8%
above the revised May 2015 estimate
and 26.6% over the June 2014 rate.
The Northeast saw the largest increase
in housing starts year over year, while
the Midwest saw the largest decline
over the same period. Housing starts
increased 47% from May 2015 to June
2015 in the Northeast.
Regional Housing Starts
June 2015
Source: US Census Bureau
Source: US Census Bureau
Units (thousands of units)
≤ 14.8
≤ 19.4
≤ 26.7
≤ 51.8
Units (thousands of units)
≤ 4.3
≤ 10.7
≤ 15.9
≤ 39.0
West 26.7
West 15.9
Midwest14.8
Midwest10.7
South51.8
South39.0
Northeast19.4
Northeast4.3
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 9 www.mercercapital.com
Macroeconomic Overview (cont.)
65.0%
67.5%
70.0%
72.5%
75.0%
77.5%
80.0%
82.5%
85.0%
Jan-04
Apr-04
Jul-0
4
Oct-04
Jan-05
Apr-05
Jul-0
5
Oct-05
Jan-06
Apr-06
Jul-0
6
Oct-06
Jan-07
Apr-07
Jul-0
7
Oct-07
Jan-08
Apr-08
Jul-0
8
Oct-08
Jan-09
Apr-09
Jul-0
9
Oct-09
Jan-10
Apr-10
Jul-1
0
Oct-10
Jan-11
Apr-11
Jul-1
1
Oct-11
Jan-12
Apr-12
Jul-1
2
Oct-12
Jan-13
Apr-13
Jul-1
3
Oct-13
Jan-14
Apr-14
Jul-1
4
Oct-14
Jan-15
Apr-15
Jul-1
5
Federal Reserve Bank of St. Louis
Seasonally adjusted capacity utilization
was 78.4% in June 2015, after measures
of 78.5% and 78.2% in April and May,
respectively. Capacity utilization for the
second quarter measured 78.4%. High
rates of capacity utilization (generally
above 80%) can be a harbinger of higher
inflation as incremental output becomes
more difficult to achieve without higher
wages and capital investment. Continuing
increases in utilization measures suggest
the potential for a renewal of business
investment in the foreseeable future.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
Bureau of Labor Statistics
According to the Labor Department’s
Bureau of Labor Statistics (“BLS”), the
unemployment rate was 5.3% in June
2015, down slightly from 5.4% and 5.5%
in April and May, respectively. The June
2015 unemployment rate is the lowest
rate since April 2008, though some
experts believe that is due to a shrinking
workforce as the labor force participation
rate is also lower at 62.6%, relative to the
mid- to high-60s prior to the recession.
Economists surveyed by The Wall Street
Journal anticipate an unemployment rate
of 5.1% by year-end 2015 and a further
decline to 4.9% by June 2016.
Unemployment
Capacity Utilization
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 10 www.mercercapital.com
Bellwether Stocks and Industry Participants
Stock Price (USD)EnterpriseValue a/o 6/30/15 (USD)
TTM Financial & Operating Results Comparable Multiples
as of 6/30/15
52-Week High
% of52-Week
HighRevenue
(USD)RevenueGrowth
EBITDAGrowth
EBITDAMargin
EV/ Revenue EV/EBITDA
Debt/EBITDATTM NTM TTM NTM
Dealer/Distributor
Finning $17.84 $26.08 68.4% 4,044.8 5,049.7 -5.3% -9.8% 10.0% 0.8 0.8 7.5 7.7 2.3
Rush Enterprises, Inc. $24.00 $32.88 73.0% 2,530.5 5,110.1 28.4% 30.2% 5.6% 0.5 0.5 9.1 13.2 5.3
Titan Machinery, Inc. $14.73 $16.73 88.0% 1,019.1 1,788.0 -20.5% -26.8% 3.6% 0.6 0.7 15.7 20.5 12.5
Toromont Industries Ltd.
$23.73 $25.95 91.4% 1,909.9 1,335.1 7.7% 12.1% 15.2% 1.5 1.4 9.9 9.2 0.7
Average 2.6% 1.4% 8.6% 0.9 0.8 10.6 12.6 5.2
Median 1.2% 1.1% 7.8% 0.7 0.7 9.5 11.2 3.8
Rental/Secondary
Ritchie Bros. Auctioneers Incorporated
$27.92 $30.85 90.5% 2,773.0 511.8 7.2% 10.7% 39.1% 5.6 5.2 14.5 13.6 0.6
United Rentals, Inc. $87.62 $119.83 73.1% 16,314.5 5,852.0 12.0% 19.2% 30.9% 2.8 2.7 9.2 5.5 4.7
Wajax Corporation $16.38 $29.55 55.4% 518.5 1,066.0 -2.3% -2.2% 5.6% 0.5 0.5 8.4 7.9 2.2
Average 5.6% 9.2% 25.2% 3.0 2.8 10.7 9.0 2.5
Median 7.2% 10.7% 30.9% 2.8 2.7 9.2 7.9 2.2
Source: Capital IQ
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 11 www.mercercapital.com
Stock Price (USD)EnterpriseValue a/o 6/30/15 (USD)
TTM Financial & Operating Results Comparable Multiples
as of 6/30/15
52-Week High
% of52-Week
HighRevenue
(USD)RevenueGrowth
EBITDAGrowth
EBITDAMargin
EV/ Revenue EV/EBITDA
Debt/EBITDATTM NTM TTM NTM
Manufacturers
Construction Mfg
Astec Industries, Inc. $41.82 $45.48 92.0% 960.4 1,016.5 6.7% 7.4% 8.3% 0.9 0.9 11.2 9.2 0.1
Caterpillar inc. $84.82 $111.46 76.1% 83,840.1 52,812.0 -4.4% -8.3% 16.2% 1.5 1.7 9.4 14.4 4.5
Komatsu Ltd. $20.12 $24.26 82.9% 23,472.9 16,085.8 0.3% -2.3% 17.0% 1.4 1.5 8.2 8.6 1.8
Average 0.9% -1.1% 13.8% 1.3 1.4 9.6 10.7 2.1
Median 0.3% -2.3% 16.2% 1.4 1.5 9.4 9.2 1.8
Agriculture Mfg
AGCO Corporation $56.78 $57.26 99.2% 6,217.7 8,411.9 -19.3% -31.1% 8.9% 0.7 0.8 6.7 9.2 2.0
Alamo Group, Inc. $54.64 $64.45 84.8% 793.9 882.2 21.5% 45.0% 10.0% 0.9 0.9 9.8 8.4 2.3
Buhler Industries Inc. $4.15 $4.94 84.0% 172.0 211.7 -13.5% -84.2% 1.3% 0.8 na 41.7 na 16.9
CNH Industrial N.V. $9.28 $10.37 89.5% 36,279.4 20,949.0 4.1% 11.4% 14.8% 1.2 na 12.1 na 10.4
Deere & Company $97.05 $98.23 98.8% 66,262.0 32,940.0 -10.9% -22.8% 15.5% 2.0 2.5 13.0 21.1 7.3
Kubota Corporation $15.90 $17.06 93.2% 25,780.0 13,414.4 8.7% 2.1% 15.3% 2.0 2.0 12.9 13.2 3.0
Average -1.6% -13.3% 11.0% 1.3 1.5 16.0 13.0 7.0
Median -3.4% -10.4% 12.4% 1.1 1.4 12.5 11.2 5.2
Other Mfg
Columbus McKinnon Corporation $25.00 $29.69 84.2% 565.3 572.9 -2.5% -1.6% 11.8% 1.0 1.0 8.2 8.0 1.8
Joy Global Inc. $36.20 $65.36 55.4% 4,618.0 3,523.7 -17.5% -26.5% 16.5% 1.3 1.4 8.0 8.2 2.2
Terex Corporation $23.25 $42.53 54.7% 3,998.7 6,923.3 -4.9% -17.2% 7.9% 0.6 0.6 7.1 6.4 3.5
Average -8.3% -15.1% 12.1% 1.0 1.0 7.8 7.5 2.5
Median -4.9% -17.2% 11.8% 1.0 1.0 8.0 8.0 2.2
Manufacturing Composite Average -2.6% -10.7% 12.0% 1.2 1.3 12.4 10.7 4.7
Manufacturing Composite Median -3.4% -5.3% 13.3% 1.1 1.2 9.6 8.9 2.7
Source: Capital IQ
Bellwether Stocks and Industry Participants (cont.)
Mercer Capital’s Value Focus: Equipment Dealer Industry Mid-Year 2015
© 2015 Mercer Capital 12 www.mercercapital.com
Equipment Dealership Valuation Considerations
Equipment dealer networks of all types have and continue to consol-
idate. Some dealer networks have achieved their respective OEM’s
desired composition while others are still working towards tomor-
row’s dealership/distribution system. Mercer Capital has significant
valuation and advisory experience concerning equipment dealer
ownership succession and consolidation over the past 20+ years.
It is no secret that valuations for many equipment dealerships gravi-
tate to certain norms. We also understand that almost every dealer
deviates from a central valuation concept due to one or more dif-
ferentiating factors based on product focus, operational or financial
composition and/or numerous other factors. Some networks tend
toward valuations substantiated primarily by adjusted asset values
while others are driven by cash flow performance. Obviously, cash
flow begets the capacity to invest in assets and assets are required
to produce cash flow. In many cases a mix of both income and asset
based methodology is needed to properly articulate credible valua-
tion. As with valuations in general, rules of thumb often fall short of
properly capturing the value of a given equipment dealership due to
many underlying issues. A rule of thumb for the core OEM business
activity may be more or less appropriate; however, many dealers
have adjacent and/or complimentary business activities that must
be viewed with special consideration and in some cases using sepa-
rate or distinct modeling. Capital structure, balance sheet treatment
of rental fleets, and numerous other financial and operational attri-
butes can cause one dealership valuation to differ from another.
Trends in construction do not follow those of agriculture. Special-
ized equipment dealers have unique attributes that can significantly
differentiate their valuations from larger more diverse dealers.
Another complicating challenge regarding dealership valuation is
the uniqueness of the overall business model and the significant
influence and control of the OEMs. The definition of “fair market
value” postulates a buyer and a seller with no compulsion, equal
capability and knowledge, and willingness. In the real world, most
equipment dealerships are at best tenants in their territories and
transactions of both the dealership as a whole and ownership inter-
ests therein are strictly overseen by and subject to the approval
of the respective OEMs. Most dealership agreements contain
stringent guidelines regarding a primary owner’s active business
participation, approved succession and contingency plans, and
numerous other vital operational and financial requirements.
Accordingly, valuations must reflect a proper understanding and
consideration of a dealership’s real world circumstances and the
range of risks associated with a specific equity interest, whether
minority or controlling, in a dealership entity.
Sources1 Summary narrative from Titan Machine, Inc. Form 10-K, filed with the U.S. Securities and Exchange Commission for the fiscal year
ended January 31, 2014. Certain narrative has been edited and/or augmented by Mercer Capital.2 Ibid.3 https://www.census.gov/construction/c30/pdf/release.pdf.4 http://www.aia.org/practicing/AIAB105516.
Mercer CapitalEquipment Dealer Industry Services
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quotations with source attribution are encouraged. Reporters requesting additional information or editorial comment should contact Barbara Walters Price at 901.685.2120. Mercer Capital’s Industry
Focus does not constitute legal or financial consulting advice. It is offered as an information service to our clients and friends. Those interested in specific guidance for legal or accounting matters should
seek competent professional advice. Inquiries to discuss specific valuation matters are welcomed. To add your name to our mailing list to receive this complimentary publication, visit our web site at
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Mercer Capital has expertise providing business valuation and financial advisory services to companies in the equipment dealer industry.
Mercer Capital has an extensive background servicing the financial advisory and business
valuation needs of equipment dealers throughout the country and across numerous OEM
networks. We assist dealers and their shareholders in wide range of activities including sales
and acquisitions, ownership planning and succession, estate tax compliance and IRS audits,
corporate reorganizations, marital dissolution, OEM purchases, financial reporting pertaining
to consolidation activities, among other purposes. We also assist OEMs in promoting efficient
dealer succession and ownership transition. Our publications and insights are often the basis
for proactive planning and dispute resolution.
Services Provided
• Valuation of equipment dealerships and OEMs
• Transaction advisory for acquisitions and divestitures
• Valuations for purchase accounting and impairment testing
• Fairness and solvency opinions
• Litigation support for economic damages, valuation and shareholder disputes
Contact a Mercer Capital professional to discuss your needs in confidence.
Timothy R. Lee, [email protected]
Nicholas J. Heinz, [email protected]
Matthew R. Crow, ASA, [email protected]
Madeleine L. [email protected]
MERCER CAPITAL
Memphis5100 Poplar Avenue, Suite 2600Memphis, Tennessee 38137901.685.2120
Dallas12201 Merit Drive, Suite 480Dallas, Texas 75251214.468.8400
Nashville102 Woodmont Blvd., Suite 231Nashville, Tennessee 37205615.345.0350
www.mercercapital.com
BUSINESS VALUATION & FINANCIAL ADVISORY SERVICES
BUSINESS VALUATION & FINANCIAL ADVISORY SERVICES
Erickson Partners Merges with Mercer Capital
Mercer Capital, a national business valuation and financial advisory firm specializing in Cor-porate Valuation, Litigation Support, Financial Reporting Valuation, and Transaction Advisory Consulting, and Erickson Partners, Inc., a Texas-based Valuation and Litigation Support firm, announce their merger effective July 1, 2015.
Mercer Capital, with its strong presence throughout the Southeast and Midwest, and Erickson Partners, with its strong presence in Texas and Oklahoma, are a perfect fit.
Both firms maintain the highest standards of quality for financial analysis and client service and believe deeply in hiring and developing the best professionals.
“The culture of both firms is so similar and that was important to us. The professionals of Er-ickson Partners are well-known in the valuation profession as some of the best and brightest. Their work product and reputation are stellar. This merger not only allows us to broaden our geographic reach but also our industry expertise,” said Matt Crow, President of Mercer Capital.
Erickson Partners enhances Mercer Capital’s broad base of industry concentrations with their exceptional history working with and knowledge of professional sports franchises and the energy sector.
“Over our 30 plus year history, Mercer Capital has developed several industry concentrations. By adding the knowledge, insight, and expertise of Don Erickson, Bryce Erickson, and the rest of the professionals of Erickson Partners, we now bring deep experience and insight to a broader range of industries than we could as separate firms,” said Chris Mercer, CEO of Mercer Capital.
“Combining with Mercer Capital, we will now be able to offer new or expanded services that complement our existing services, as well as additional industry expertise,” said Bryce Erick-
son, Managing Director of Erickson Partners. “In addition to our sports franchise and energy industry concentrations, we will be able to offer deep industry concentrations in construction and building materials, agribusiness, manufacturing and financial institutions, which includes depository institutions, insurance companies, fintech companies, asset management firms, and PE firms.”
“The combined firm will have over 40 valuation professionals positioned in five markets through-out the southwest and southeast. Such a deep bench will provide us with a tremendous op-portunity to better serve the expanding needs of our clients,” said Don Erickson, President of Erickson Partners. “Joining with Mercer Capital gives us national resources that will benefit our clients in Texas and beyond.”
About Mercer Capital
Mercer Capital is a national business valuation and financial advisory firm offering corporate valua-tion, litigation support, financial reporting valuation, and transaction advisory consulting services to a national client base. Clients include private and public operating companies, financial institutions, asset holding companies, high-net worth families, and private equity/hedge funds.
About Erickson Partners, Inc.
Erickson Partners is a professional valuation and advisory firm specializing in business valuation, litigation support, financial investigations and strategic corporate advisory services. Founded by Don & Bryce Erickson, Erickson Partners has served large and small clients by providing complex financial and economic analysis, leading to reasonable valuation opinions that withstand scrutiny.
BUSINESS VALUATION & FINANCIAL ADVISORY SERVICES
CONTACT US
Z. Christopher Mercer, ASA, CFA, ABAR
901.685.2120
Matthew R. Crow, CFA, ASA
901.685.2120
Donald Erickson, ASA
214.468.8400
Bryce Erickson, ASA, MRICS
214.468.8400
MERCER CAPITAL
Headquarters
5100 Poplar Avenue, Suite 2600
Memphis, TN 38137
901.685.2120
Dallas
12201 Merit Drive, Suite 480
Dallas, TX 75251
214.468.2120
Nashville
102 Woodmont Blvd., Suite 231
Nashville, TN 37205
615.345.0350
www.mercercapital.com
COMBINING CULTURES OF EXCELLENCE