september 2017 - namvbc · 2017. 10. 26. · 350 400 450 500 550 600 650 700 750 jun 15 sep 15 dec...

September 2017

House of Cars

0

100

200

300

400

500

600

700

800

2008 2009 2010 2011 2012 2013 2014

Source: SEC Filings

709.272008.11.20 – 2015.06.05

The Kerrigan Auto Retail Index – Hit a Historic High in June 2015

Reports of My Death are Greatly Exaggerated

350

400

450

500

550

600

650

700

750

Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17

489.742015.06.05 – 2017.08.15

Source: SEC Filings

(42%)

The Kerrigan Auto Retail Index – Declined 42% Coming into 2016

$14 $211

$504 $502$659

$1,449

$832$661

$276$443

2009 2010 2011 2012 2013 2014 2015 2016 1H 2016 1H 2017

Public Dealership Group Acquisition

Spending in US

Source: SEC Filings

The Publics’ Acquisition Spending Declines in 2016

US Dealership Market Share

14,953 dealerships are

owned by small groups

and individuals

5.8%

81.9%

12.3%

Top 125 Dealership Groups Small Dealership Groups andIndividual Dealers

Non-Public Dealerships

Public Dealership Groups

Auto Retail – The Most Fragmented Retail Industry in the US

95 Transactions

127 Transactions

106 Transactions

101 Transactions

1H 2014 1H 2015 1H 2016 1H 2017

Number of Transactions1H 2014 to 1H 2017

Source: The Banks Report

Number of Transactions – Still Near Record

Private versus Public Dealership

Franchise Acquisitions1H 2017

Source: The Banks Report

Private Buyers Dominate the Buy/Sell Market

Public12 Franchises

7%

Private153 Franchises

93%

Private Buyers Dominate the Buy/Sell Market

“If this is a plateau, as some have called it, it’s got a helluva view!”

John Mendel, EVP, American Honda Motor Company

(1.0%)

2.4%

-5%

0%

5%

10%

15%

2013 2014 2015 2016 1H 2017

New Vehicles Sales Fixed Operations

New Vehicle and Fixed Operations Sales

Growth for the Average Dealership

Source: NADA

Auto Retail – Hedged Business Model

“Parts and service was the

highlight of the quarter. We

were able to offset the

declines in our new and used

business with strong growth

in parts and service.”

David Hult

CFO, Asbury Automotive

3rd Quarter Earnings Call

8.8%

15.8%

45.0% 47.3%

New Vehicle Used Vehicle Body Shop FixedOperations

Average Dealership Gross

Profit Margin by Department

5.1x

5.4x

Source: NADA

Auto Retail – Hedged Business Model

Dealership Real Estate – Prime Property

Prime Property

Average Annual Dealership Rent Factor2010 – LTM 1H 2017

Source: NADA

$548,762 $590,838 $595,861

$626,733 $647,031 $674,856

$724,207 $733,587

2010 2011 2012 2013 2014 2015 2016 LTM 2017

Rents Increasing – Adding Some Risk to the Auto Retail Business Model

$10.5

$6.5

Average DealershipReal Estate Value

Average BlueSky Value

Average Dealership Real Estate

versus Average Blue Sky Value($ in millions)

Source: NADA

Real Estate Often the Most Valuable Asset in a Buy/Sell

Blue Sky

Multiple

Real Estate

Multiple

Multiples Cap Rates

3 33%

4 25%

5 20%

6 17%

7 14%

8 13%

9 11%

10 10%

11 9%

12 8%

13 8%

14 7%

Real Estate Values and Transaction Values

Real Estate Multiples Significantly Higher than Blue Sky Multiples

I. Buyer’s return on investment parameters drive

franchise buy/sell activity

II. Sellers’ pricing expectations rationalize with a

plateauing market

III. Buyers seek investments in higher margin

business segments

IV. Dealers are increasingly open to equity and

growth capital partners

2017 Buy/Sell Trends

Domestic31%

Import Luxury21%

Import Non-Luxury

48%

FY 2015

Domestic44%

Import Luxury

17%

Import Non-Luxury39%

Buy/Sell Franchise Transaction Market Share

1H 2017

Source: The Banks Report and Kerrigan Advisors Analysis

I. Buyer’s Return on Investment Parameters Drive Franchise Buy/Sell Activity

Estimated Return on Investment and Average

Estimated Blue Sky and Real Estate($ in millions)

.0

Source: NADA and Kerrigan Advisors Analysis

23.5% 21.4% 15.7%

12.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

$0

$5

$10

$15

$20

$25

$30

$35

$40

Domestic Import Luxury Top Luxury

Real Estate Value Franchise Value ROI

I. Buyer’s Return on Investment Parameters Drive Franchise Buy/Sell Activity

4 and Under 4 - 5 5 - 6 6 - 7 7 - Priceless

Average Kerrigan Advisors

Blue Sky Multiple Ranges

Franchise Preferences Influenced by ROI, Capital Requirements and Risk

More Operational Risk

Higher

ROI

Lower

ROI

More Capital Risk

End of an Era: Blue Sky Price Premiums

“Relative to a few years ago, I

think it’s fair to say that pricing

is more in line with what buyers

are willing to pay and I believe

sellers are willing to take, which

is an exciting time.”

Bryan DeBoer

CEO, Lithia Motors

Earnings Call

Average Dealership Pre-Tax Earnings &

Change in Average Dealership Earnings

II. Seller’s Pricing Expectations Rationalize with a Plateauing Market

Source: NADA

$875,125

$1,138,307$1,228,760

$1,283,609$1,382,379

$1,503,432$1,466,799$1,435,540

30.1%

7.9%4.5%

7.7% 8.8%

-2.4% -2.1%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

2010 2011 2012 2013 2014 2015 2016 2017 LTM

Earnings Change in Earnings

“I think that our peers have all

been getting into this

business [used car business],

and I think they see that

capital expenditures and the

investment in bricks and

mortar are considerable less

than going into the traditional

dealership model.”

Roger Penske

Chairman, Penske

Earnings Call

Assessment of Goodwill Multiples

III. Buyers Seek Investments in Higher Margin Auto Retail Business Segments

Source: Kerrigan Advisors Analysis and Assistance from Brad Mewes Supplement

3.0x

4.0x

6.75x

9.00x

2.0x3.0x 3.0x

6.0x

Average CollisionCenter Goodwill

Multiple

Average UsedCar Platform

Goodwill Multiple

Average Blue SkyMultiple Non-

Luxury

Average Blue SkyMultiple Luxury

High 3.0x 4.0x 6.75x 9.00x

Average 2.5x 3.5x 4.88x 7.50x

Low 2.0x 3.0x 3.0x 6.0x

$0

$5

$10

$15

$20

$25

$30

$35

$40

Domestic Import Luxury Top Luxury

Real Estate Value Franchise Value

Average Estimated Blue Sky and Real Estate($ in millions)

$13.6

$20.2

$32.8$36.3

IV. Dealers Increasingly Open to Equity and Growth Capital Partners

Source: NADA and Kerrigan Advisors Analysis

26

51

40

47

2014 2015 2016 2017 YTD

Kerrigan Advisors’ Estimate of Number of Dealerships

Which Sold a Minority or Majority Stake

IV. Dealers Increasingly Open to Equity and Growth Capital Partners

Source: Automotive News and Kerrigan Advisors Analysis

Factors Affecting Franchise Multiple Variability

4.26x 4.29x 4.29x

4.49x 4.51x 4.51x4.47x 4.45x 4.47x 4.47x 4.47x

Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017

Franchise Change in Q3

+ 0.82

+ 0.49

+ 1.32

- 0.19


- 0.44


+ 0.36

- 0.06


+ 0.24


+ 0.12

- 0.44


+ 0.21

Kerrigan Advisors Average Non-Luxury Blue Sky Multiples

Average Blue Sky Multiples – Non-Luxury

Kerrigan Advisors Non-Luxury Blue Sky Multiples – 2017

Kerrigan Advisors Non-Luxury Blue Sky Multiples – Q2 2017

Franchise Buyer Demand

High

High

High

Average

Average

Average

Average

Average

Declining

Declining

Low

Low

Increasing

Increasing

Kerrigan Advisors Franchise Analysis – Non-Luxury

9% 8%

4%

1% 1%

-2%-3%

-4% -4%

-7%

-10%-10%

Change in Sales


FranchiseChange in Sales

Q2 17 vs Q2 16

-2%

+1%

+9%

-4%

-4%

-7%

+4%

+1%

-10%

-10%

+8%

-3%

FranchiseSales Per

Franchise TTM

1,689

1,415

1,017

686

787

900

409

1,327

874

790

515

484

1,689

1,415 1,327

1,017 900 874

790 787 686

515 484 409

Sales Per Franchise


Franchise Buyer DemandChange in Sales

Q2 17 vs Q2 16

Sales Per

Franchise TTM

Average Dealership

Profitability

Moody's Credit

RatingMultiple Outlook

High -2% 1,689 Consistently High Aa3 Steady

High +1% 1,415 Consistently High A1 Steady

High +9% 1,017 Consistently High Not Rated Positive

Average -4% 686 Variable Baa3 Positive

Average -4% 787 Variable Baa2 Positive

Average -7% 900 Variable Ba3 Negative

Average +4% 409 Variable Baa3 Steady

Average +1% 1,327 Variable A2 Steady

Declining -10% 874 Variable Baa1 Steady

Declining -10% 790 Variable Baa1 Steady

Low +8% 515 Consistently Low A3 Positive

Low -3% 484 Consistently Low Not Rated Steady


5.85x 5.85x 5.85x

6.36x 6.36x 6.30x 6.29x 6.31x 6.37x 6.37x 6.38x

Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017


+ 1.71

+ 1.61

+ 1.93


- 0.21

- 0.20

- 0.24


- 0.20

+ 0.14


+ 0.21


+ 0.03

- 0.14

+ 0.18

+ 0.54

Kerrigan Advisors Average Luxury Blue Sky Multiples

Average Blue Sky Multiples - Luxury


+ 0.04

Kerrigan Advisors Luxury Blue Sky Multiples – 2017

Kerrigan Advisors Luxury Blue Sky Multiples – Q2 2017

9.0 8.75 8.75 8.5 8.0

7.0

4.0 3.5 3.5 3.5

7.0 7.0 7.0 7.0 7.0

4.5

3.0 3.0 3.0 3.0

Porsche Lexus Mercedes BMW AudiLand

Rover -Jaguar

Infiniti Acura Cadillac Volvo

High 9.0 8.75 8.75 8.5 8.0 7.0 4.0 3.5 3.5 3.5

Average 8.0 7.88 7.88 7.75 7.5 5.75 3.50 3.25 3.25 3.25

Low 7.0 7.0 7.0 7.0 7.0 4.5 3.0 3.0 3.0 3.0

Franchise Buyer Demand

High

High

High

High

High

Average

Low

Low

Low

Increasing

Kerrigan Advisors Franchise Analysis – Luxury

88%

22%

6% 3%

0% -2% -2% -3%-6% -7%

-12%

Change in Sales


FranchiseChange in Sales

Q2 17 vs Q2 16

-12%

-0%

-3%

+6%

+3%

-2% LR

+88% Jag

-6%

+22%

-2%

-7%

FranchiseSales Per

Franchise TTM

1,322

986

906

741

293

432 LR

123 Jag

574

719

183

271

1,322

986 906

741 719

574

432

293 271 183

123

Sales Per Franchise



Franchise Buyer DemandChange in Sales

Q2 17 vs Q2 16

Sales Per

Franchise TTM

Average Dealership

Profitability

Moody's Credit

RatingMultiple Outlook

High -12% 1,322 Consistently High Aa3 Steady

High -0% 986 Consistently High A2 Steady

High -3% 906 Consistently High A1 Steady

High +6% 741 Consistently High A3 Steady

High +3% 293 Highest in Industry A3 Positive

Average-2% LR

+88% Jag

432 LR

123 JagDeclining Ba1 Steady

Low -6% 574 Consistently Low A1 Steady

Low +22% 719 Improving A2 Steady

Low -2% 183 Consistently Low Baa3 Steady

Increasing -7% 271 Improving Baa1 Positive

Sold To

Gee Automotive and O’Brien Auto Group

Sold To

Lithia Motors

Sold To

AMSI

Sold To

AutoNation

Sold To

Car Pros

Leading Sell-Side Advisor to Dealers Nationwide

Sold To

Lithia Motors

Sold To

Kendall Auto Group

september 2017 - namvbc · 2017. 10. 26. · 350 400 450 500 550 600 650 700 750 jun 15 sep 15 dec...

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