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Mercer Capital's Value Focus: Auto Dealer Industry | Mid-Year 2015


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Mercer Capital's Auto Dealer Industry newsletter provides perspective on valuation issues. Each newsletter also includes a macroeconomic trends, industry trends, and guideline public company metrics.

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Mercer Capital's Value Focus: Auto Dealer Industry | Mid-Year 2015

  1. 1. VALUE FOCUS Auto Dealer Industry Overview Inside The aptly named Great Recession hit the auto industry and its dealers harder than almost any other industry, save for construction and housing. As unemployment rose, consumer spending and home values plummeted. With little to no discretionary income and no means to finance car purchases, sales tumbled, margins were squeezed, and GM and Chrysler filed for Chapter 11 bankruptcy. Recovery began in 2009, con- fidence and disposable incomes rose allowing consumers to fund purchases of more durable goods, including cars. These trends are expected to continue through 2019. However, the auto dealer industry, though making a strong recovery from the most recent recession, is facing pressures from government regulation, shifting demand and supply, and new market entrants. More stringent environmental standards are causing car prices to rise, the shift to internet for information and purchasing is forcing margins down (but also increasing volume), and demand is shifting more toward hybrid, electric, and autono- mous cars. The leading auto dealers are taking notice of these shifting trends. Macroeconomic Indicators Productivity 1 Housing 3 Personal Consumption and Confidence 5 NADA Dealer Optimism Index 6 Energy 7 Auto Dealer Indicators Average Dealer Profile 8 Vehicles and Price 10 Valuation Trends 11 Mergers & Acquisitions 14 Guideline Company Pricing 15 About Mercer Capital 17 Erickson Partners Merges with Mercer Capital 18 Mid-Year 2015
  2. 2. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 1 Rising disposable income, a measure of consumers’ ability to support debt-funded purchases, is dependent on an economy’s productivity. While the aptly named Great Recession reached its official end in mid-2009, economic growth remains somewhat subdued. Although the housing market has strengthened, growth in the market remains weak. The unemployment rate reached pre-recession levels in December 2014, but labor force participation remains low and has continued to fall. Economic growth is expected to remain positive, though government spending cuts, political uncertainty, and rising interest rates are causes for concern. GDP growth expectations from private economists surveyed by The Wall Street Journal are on the order of 2.8% for the first quarter of 2015 and 2.8% for all of 2015. This compares to GDP growth of 2.3%, 2.2%, and 2.4% in 2012, 2013, and 2014, respectively. Although the Federal Reserve ended its asset purchases, a significant tightening of monetary policy (via an increase in the target federal funds rate) is unlikely in the short run until unemployment declines and inflation rises. Macroeconomic Indicators // Productivity $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,000 -10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% GDP(inBillions) AnnualizedRealGrowthRate Quarterly Annualized Real Growth Rate Annual Real Growth Rate GDP (Current Dollars) GDP (Chained 2009 Dollars) Source: Bureau of Economic Analysis -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Annualized Quarterly Change Annual Change Source: Bureau of Labor Statistics Gross Domestic Product According to advance estimates released by the Department of Commerce’s Bureau of Economic Analysis, Real Gross Domestic Product, the output of goods and services produced by labor and property located in the United States, increased at an annualized rate of 2.3% during the second quarter of 2015. The increase was attributable to gains in personal consump- tion expenditures, exports, state and local government spending, and residential fixed investment. Federal government spending, private inventory investment, and nonresidential fixed investment spending decreased. Imports, which are subtracted from the national income and product accounts used in the calculation of GDP, increased. Nonfarm Business Productivity According to the Bureau of Labor Statis- tics, seasonally adjusted nonfarm business productivity, as measured by the hourly output of all persons, increased at an annual rate of 1.3% in the second quarter of 2015. The increase was a function of the 2.8% increase in output combined with an increase of 1.5% in hours worked. Labor productivity, hourly compensation and unit labor costs also experienced increases, while real hourly compensation declined 1.1%. The productivity increase follows decreases in productivity of 2.2% and 1.1% in the fourth quarter of 2014 and the first quarter of 2015, respectively. Annual average productivity increased 0.3% in the second quarter of 2015 relative to the second quarter of 2014. Productivity increased 1.7% for the business sector GDP Change in Nonfarm Business Productivity (inclusive of farming activity) in the second quarter of 2015. This was the result of a 2.8% increase in output and a 1.1% increase in hours worked. Manufacturing productivity, generally more volatile in its quarterly measures, increased 2.5% during the quarter.
  3. 3. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 2 Macroeconomic Indicators // Productivity (cont.) -60.0% -40.0% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% 160.0% Dow Jones Industrial Average S&P 500 NASDAQ Composite Source: Bloomberg L.P. 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 Equity Indices Due to the Greek financial crisis spurring a sell-off at the end of the quarter, the Dow Jones, the S&P, and the NASDAQ experienced losses during June 2015. The Dow Jones and the S&P also posted losses for the second quarter of 2015, while the NASDAQ posted its tenth consecutive quarterly gain. Driven by signs of an improving economy and the anticipation of the Federal Reserve increasing rates, most U.S. Treasury yields rose during the second quarter of 2015. The chart shows the relative price performance of the Dow Jones Industrial Average, S&P 500, and NASDAQ Com- posite Indices. Unemployment According to the Labor Department’s Bureau of Labor Statistics, the unemploy- ment rate was 5.3% in June 2015, down slightly from 5.4% and 5.5% in April and May, respectively. Unemployment rates increased steadily throughout 2008 and into 2009, peaking at 10% in October 2009. The October 2009 unemployment rate represented the highest level since 1983. Pre-recession unemployment levels were reached in December 2014. The June 2015 unemployment rate is the lowest rate since April 2008, though some experts believe that is due to a shrinking work- force. Excluding the recent trend, the last time the labor force participation rate was lower than its current level was 1977. As job availability increases the labor force could increase due to individuals reentering the Equity Index Price Return Civilian Unemployment Rate workforce, which could lead to periodic increases in the unemployment rate in the foreseeable future. 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.
  4. 4. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 3 Traditionally, home owners have used home equity to purchase durable goods. When the housing market collapsed in late 2007, this method of financing was effectively cut off. The housing market improved considerably from the depths of the financial crisis due to sustained reductions in interest rates, though it remains well below highs seen in 2005 and 2006. Although the Federal Reserve has begun tapering the rate of asset purchases, a significant tightening of monetary policy (via an increase in the target federal funds rate) is unlikely in the short run until unemploy- ment declines and inflation rises. Further, home building activity has traditionally been a primary driver of overall economic activity because new home construction stimulates a broad range of industrial, commercial, and consumer spending and investment. “The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” -Federal Reserve FOMC statement January 28, 2015 Macroeconomic Indicators // Housing 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% Jan-2005Jul-2005Jan-2006Jul-2006Jan-2007Jul-2007Jan-2008Jul-2008Jan-2009Jul-2009Jan-2010Jul-2010Jan-2011Jul-2011Jan-2012Jul-2012Jan-2013Jul-2013Jan-2014Jul-2014Jan-2015 30-Year Mortgage Rate 10-Year Treasury rate Effective Federal Funds Rate Source: Federal Reserve Economic Data Key Interest Rates The Federal Reserve’s Open Market Com- mittee lowered its target for the federal funds rate to a range of 0% to 0.25% during the fourth quarter of 2008, representing a total rate cut of 175 to 200 basis points during the quarter. Target rates were held steady during 2009 and have remained unchanged through the second quarter of 2015. This has kept interest rates low, increasing the ability of households to fund spending. The yield on the 10-year Trea- sury note is expected to increase during 2015, which could cause consumers to switch to used cars, as new car loans are less affordable. Change in Key Interest Rates
  5. 5. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 4 Macroeconomic Indicators // Housing (cont.) 0 50 100 150 200 250 Jul-2005 N ov-2005 M ar-2006Jul-2006 N ov-2006 M ar-2007Jul-2007 N ov-2007 M ar-2008Jul-2008 N ov-2008 M ar-2009Jul-2009 N ov-2009 M ar-2010Jul-2010 N ov-2010 M ar-2011Jul-2011 N ov-2011 M ar-2012Jul-2012 N ov-2012 M ar-2013Jul-2013 N ov-2013 M ar-2014Jul-2014 N ov-2014 M ar-2015 Housing Price Index SA Case-Shiller 10 City Index SA Case-Shiller 20 City Index SA Source: Federal Housing Finance Agency and Federal Reserve Economic Data Housing Prices Housing prices have not yet recovered to pre-recession levels but have increased year-over-year since January 2011. Change in Housing Prices 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 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 pri- vate 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. In January 2015, the Census Bureau redefined the uni- verse of permitting authorities, an action it last undertook in 2004. The 2014 data set (Universe) reflects an increase in the number of permit-issuing places and a decrease in the areas where permits are not required. The Census Bureau indi- cated that the 2014 Universe should be comparable to prior Universe vintages, although the Census Bureau did restate 2014 housing permits statistics using the 2014 Universe of permit issuers. Seasonally Adjusted Annualized Rates of New Housing Starts and Building Permits (millions of units)
  6. 6. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 5 Increases in disposable income allow for increases in personal consumption, especially debt-fund purchases like cars. However, these increases must keep pace with inflation. Further, increases in disposable income tend to increase confidence in consumers and business owners. Confident consumers have more optimistic expectations of the future. They expect a stronger economy, lower unemployment, higher future wages, and better ability to pay for debt-funded purchases. Similarly, confident businesses are a gauge of an economy’s ability to employ labor productively in the future. Macroeconomic Indicators // Personal Consumption & Confidence Disposable Income and Personal Consumption $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $32,000 $33,000 $34,000 $35,000 $36,000 $37,000 $38,000 $39,000 PersonalConsumption(BIllions) PersonalIncome Real Disposable Personal Income: Per capita, Chained 2009 Dollars, Monthly, Seasonally Adjusted Personal Consumption Expendituress, Monthly, Seasonally Adjusted Source: Federal Reserve Economic Data 0 20 40 60 80 100 120 Consumer Confidence Index NFIB Small Business Optimism Index Source: Bloomberg, L.P. Disposable Income and Personal Consumption Real personal income and personal consumption have both been steadily increasing year-over-year since 2010, partly due to growth and partly due to Federal Reserve policy keeping inflation near 0.0%. Further, disposable income is expected to continue rising through 2015. Confidence Both consumer and small business con- fidence has been trending upward since the Great Recession. This confidence will drive demand for cars. Change in Confidence
  7. 7. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 6 Macroeconomic Indicators // NADA Dealer Optimism Index 0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 M ar-03 M ar-04 M ar-05 M ar-06 M ar-07 M ar-08 M ar-09 M ar-10 M ar-11 M ar-12 D ec-12 D ec-13 Increase No Change Decline Index Value Source: NADA Data NADA Dealer Optimism IndexNADA Dealer Optimism Index According to the 2014 NADA Dealer Optimism Index, fewer dealers believed profits would continue to rise as of December 2013. However, the same survey showed dealer confidence has surpassed pre-recession highs, and cur- rent profits are expected increase.
  8. 8. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 7 Energy prices not only impact the price of manufacturing a car, but also the running price of a car, as consumers must fill up on gas regularly. Increased environmental regulations have improved fuel economy of most cars but have also led to higher prices at the dealership. Conse- quently, consumer demand has shift toward more fuel efficient, typically smaller, vehicles. Macroeconomic Indicators // Energy 0 20 40 60 80 100 120 140 160 Cushing, OK WTI Spot Price FOB (Dollars per Barrel) Source: Energy Information Administration $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 DollarsPerGallon New York Harbor Conventional Gasoline Regular Spot Price FOB U.S. Gulf Coast Conventional Gasoline Regular Spot Price FOB Los Angeles Reformulated RBOB Regular Gasoline Spot Price Source: Energy Information Administration Spot Oil Oil prices have steadily increased since 2009 to historically high levels through the first half of 2014, shifting consumer demand to hybrid and electric vehicles. World crude oil prices decreased sharply throughout the second half of 2014. Gas Gas prices have mimicked oil prices, rising to historical highs in the first half of 2014 before dropping sharply through December. Spot Oil Prices Gas Prices
  9. 9. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 8 Macroeconomic measures including employment, productivity housing prices and starts, interest rates, and disposable income have provided an environment conducive to car purchases. However, rising prices, downward pressure on margins, and changes in demand have caused shifts in automobile demand. Auto Dealer Indicators // Average Dealer Profile 9.0 9.5 10.0 10.5 11.0 11.5 12.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 F2015 F2016 F2017 F2018 Passenger Cars Light Trucks Total Source: IHS Automotive, formerly Polk 0 5 10 15 20 25 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 $50 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Dealerships(Thousands) Sales(Millions) Cost of Sales Total Dealership Expense Pre-Tax Income Dealerships Source: NADA Data Average Age of Vehicle Fleet IHS Automotive, a global automotive market intelligence firm, found that the average age of all light vehicles hit a record high of 11.5 years in 2014 due to rising car quality; they expect this rate to slow as new vehicle sales continue to recover, not hitting 11.6 years until 2016 and 11.7 years until 2018. Further, they expect this trend to provide more opportunities for the auto- motive aftermarket. Dealership Sales By the end of 2013, there was an increase of 30 franchised dealerships, the second consecutive increase, reversing a consol- idation trend that started in 1987. Sales rose 8.8% in 2013, the second year in a row, above pre-recession highs. However, net profit before taxes remained flat at 2.2%. Current pressure on margins stems primarily from the fact that the asymmetric information that once favored dealers is balanced by internet sites such as Edmunds,, and Average Age of Vehicle Fleet Dealership Sales
  10. 10. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 9 Auto Dealer Indicators // Average Dealer Profile (cont.) Products and Services Segmentation 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sales New Vehicle Used Vehicle Service and Parts Source: NADA Data Products and Services Segmentation From 2005 to 2010, the percentage of sales from used vehicles and service and parts segments of the industry rose, as financing new vehicle purchases became more difficult. Since then, new vehicles’ share of sales has gone up, but has not recovered to pre-recession levels.
  11. 11. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 10 Auto Dealer Indicators // Vehicles and Price Vehicles and Price 0 100 200 300 400 500 600 700 800 900 1000 $26,000 $27,000 $28,000 $29,000 $30,000 $31,000 $32,000 $33,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 NewVehiclesSoldPerDealership AverageRetailSellingPrice Average Retail Selling Price New Vehicles Sold Per Dealership Source: NADA Data Vehicles and Price Through the end of 2013, prices were forced up by rising oil prices and increased environmental regulations. Average vehicles sold per dealership continued to rise even as the number of franchised dealerships increased.
  12. 12. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 11 Valuation Trends -25.00% -20.00% -15.00% -10.00% -5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 6/30/14 8/31/14 10/31/14 12/31/14 2/28/15 4/30/15 6/30/15 Auto Components Automobile Manufacturers S&P 500 NASDAQ Composite Dow Jones Industrial Average Source: Bloomberg L.P. -30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00% 6/30/14 8/31/14 10/31/14 12/31/14 2/28/15 4/30/15 6/30/15 Ford Motor Co General Motors Co Honda Motor Co Ltd Toyota Motor Corp Tesla Motors Inc Nissan Motor Co Ltd Source: Bloomberg, L.P. Index Performance OEM Stock Performance OEMs and Indices Auto components have continued to outpace auto manufacturers reflecting continued increases in consumer spending on maintenance compared to pre-recession levels. Nissan, Tesla, and Toyota are outperforming Ford, GM, and Honda. Sig- nificant events in the last year influencing stock prices include a drop in oil prices, the Takata airbag recalls, and new EPA emissions standards.
  13. 13. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 12 Valuation Trends (cont.) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Chrysler Ford General Motors Toyota Honda Nissan Volkswagen Other Imports Source: NADA Data Brand Market Share By Unit Sales In 2012, Chrysler was the only member of the Detroit Three whose market share rose. Of the three major Japanese brands, Nissan’s fell while Honda and Jap- anese brands gained market share. Other imports have been gaining market share. Brand Market Share By Unit Sales
  14. 14. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 13 -40.00% -30.00% -20.00% -10.00% 0.00% 10.00% 20.00% 30.00% 40.00% 6/30/14 7/31/14 8/31/14 9/30/14 10/31/14 11/30/14 12/31/14 1/31/15 2/28/15 3/31/15 4/30/15 5/31/15 6/30/15 AutoNation Inc Penske Automotive Group Inc Sonic Automotive Inc Group 1 Automotive Inc Asbury Automotive Group Inc Lithia Motors Inc Source: Bloomberg L.P. Auto Dealership Stock Performance Publicly Traded Auto Dealerships “We are pleased with how the AutoNation brand has been embraced, as well as the continued rollout of AutoNation Express and the progress of all our digital initiatives. Over 20% of our sales were generated through AutoNation websites for the first half of the year.The first phase of Auto- Nation Express, where a consumer can identify a vehicle, reserve that vehicle and put a deposit on that vehicle, was completed six months ahead of schedule. AutoNation is committed to providing transparency and delivering a peerless customer experience through initiatives such as AutoNation Express.” Mike Jackson, Chairman and CEO of Auto- Nation. “AutoNation Reports Record Second Quarter EPS from Continuing Operations.” 22 July 2015. “We just completed the best quarter and six-month period in the his- tory of our company. The performance of our business continues to demonstrate the flexibility and resiliency of the company’s brand mix and business model.The record second quarter results were driven by a 7.5% increase in retail automotive unit sales, a 50-basis point increase in automotive retail service and parts gross margin and a reduction of 110 basis points in selling, general and administrative expenses as a percent of gross profit.” Roger S. Penske, Chairman of Penske Automotive Group. “Penske Automotive Reports Record Second Quarter Results.” 29 July 2015. “We are pleased to report another record-setting quarter. The combina- tion of continued solid top-line growth in the United States and the United Kingdom, combined with improved expense leverage, delivered all-time record adjusted diluted EPS of $1.98. We are particularly pleased with our 14 percent increase in both U.S. and U.K. Same Store used vehicle sales and the acceleration of our U.S. parts and service revenue, which was up 8 percent on a Same Store basis.Finally, although overall market conditions have continued to deteriorate in Brazil, the combination of our brand profile and cost cutting initiatives allowed us to deliver a pretax profit in that market this quarter, which is an impressive accomplishment by our Brazilian operating team.” Earl J. Hesterberg, President and CEO of Group 1 Automotive. “Group 1 Automotive Reports Record Quarterly Earnings.” 23 July 2015. “I’m proud of our operations team for achieving the lofty goal of retailing 100 preowned vehicles per store per month. We have had quarters in the past when we approached achieving this metric and several months where we surpassed this metric, but it had never been achieved on a quarterly basis. Generating this type of retail activity fuels our fixed oper- ations and F&I areas where we are most profitable. We also worked to build our fixed operations business in the quarter. In addition to the benefits we experienced through the reconditioning work performed to achieve the sale of 100 preowned vehicles per store per month, we were able to grow overall same store fixed operations gross profit $13.1 million, or 8.5%, compared to the prior year quarter. Fixed oper- ations growth was achieved in our customer pay, warranty and internal categories. This type of internal growth strategy is central to our One SonicOne Experience (OSOE) initiative which is intended to grow the topline revenue categories, generate retail activity, and realize benefits over multiple gross profit streams.” B. Scott Smith, President of Sonic Automotive. “Sonic Automotive, Inc. Reports Quarterly Adjusted Continuing Operations Earnings per Share of $0.46.” 20 July 2015. Valuation Trends (cont.)
  15. 15. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 14 Mergers and Acquisitions $- $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 0 5 10 15 20 25 30 35 2009 2010 2011 2012 2013 2014 1H 2015 TotalTransactionValue(millions) NumberofTransactions Total Transaction Value Number of Transactions Source: Capital IQ M&A ActivityWhile overall deal value was up in 2014, the number of transactions decreased. The number of deals in 2015 is on pace with 2014, though overall deal value is also down.
  16. 16. © 2015 Mercer Capital 15 Dealer Pricing Auto Manufacturing Pricing 30-Jun Price $ 52 Week Perf. % LTM Ent. Value $ Mil Debt / Equity % EBITDA Margin % EV / Sales Multiple x EV / EBITDA Multiple x EV / Nxt Yr EBITDA Multiple x Price / Earnings xCompany Name Ticker Sales $ Mil EBITDA $ Mil Ford Motor Co F 14.86 -9.63% 141,953 11,621 182,481 469.07% 8.19% 1.29 15.70 14.01 16.15 General Motors Co GM 33.33 -8.08% 152,764 12,316 106,845 152.27% 8.06% 0.70 8.68 6.72 12.34 Honda Motor Co Ltd HMC 32.22 -6.48% 117,006 13,725 nm 94.65% 11.73% nm nm nm nm Hyundai Motor Co 005380.KS 121.69 -44.93% 82,266 9,198 74,161 93.45% 11.18% 0.90 8.06 8.60 4.77 Toyota Motor Corp TM 133.75 12.15% 243,687 37,549 nm 114.31% 15.41% nm nm nm nm Tesla Motors Inc TSLA 268.26 11.91% 3,703 (85) 36,784 375.44% -2.30% 9.93 nm 39.14 nm Nissan Motor Co Ltd NSANY 20.91 11.00% 103,397 12,882 nm 141.28% 12.46% nm nm nm nm Peugeot SA PEUGF na na 66,027 4,746 nm 83.36% 7.19% nm nm nm nm Average 89.29 -4.87% 113,850 12,744 100,068 190.48% 8.99% 3.20 10.81 17.12 11.09 Median 33.33 -6.48% 110,201 11,969 90,503 127.79% 9.68% 1.09 8.68 11.31 12.34 Source: Bloomberg L.P. 30-Jun Price $ 52 Week Perf. % LTM Ent. Value $ Mil Debt / Equity % EBITDA Margin % EV / Sales Multiple x EV / EBITDA Multiple x EV / Nxt Yr EBITDA Multiple x Price / Earnings xCompany Name Ticker Sales $ Mil EBITDA $ Mil Traditional Auto Dealers AutoNation Inc AN 62.98 5.53% 19,690 957 12,233 229.33% 4.86% 0.62 12.79 11.58 16.93 Penske Automotive Group Inc PAG 52.11 7.15% 17,706 593 8,848 252.31% 3.35% 0.50 14.93 12.71 14.97 Sonic Automotive Inc SAH 23.83 -10.32% 9,296 285 3,198 295.53% 3.06% 0.34 11.23 10.35 13.42 Group 1 Automotive Inc GPI 90.83 8.72% 10,110 356 4,680 257.86% 3.52% 0.46 13.13 11.76 23.35 Asbury Automotive Group Inc ABG 90.62 31.83% 6,054 305 3,938 387.93% 5.03% 0.65 12.93 11.26 22.77 Lithia Motors Inc LAD 113.16 21.22% 6,101 286 4,799 256.84% 4.68% 0.79 16.80 12.50 19.75 Average 72.26 10.69% 11,493 463 6,283 279.96% 4.08% 0.56 13.64 11.69 18.53 Median 76.80 7.93% 9,703 330 4,740 257.35% 4.10% 0.56 13.03 11.67 18.34 Used Auto Dealers America's Car-Mart Inc/TX CRMT 49.32 24.70% 473 (4) 524 44.83% -0.80% 1.11 nm 9.15 15.18 CarMax Inc KMX 66.21 27.30% 14,533 1,137 23,303 289.68% 7.82% 1.60 20.49 19.61 23.40 Average 57.77 26.00% 7,503 567 11,913 167.26% 3.51% 1.36 20.49 14.38 19.29 Median 57.77 26.00% 7,503 567 11,913 167.26% 3.51% 1.36 20.49 14.38 19.29 Source: Bloomberg L.P. Guideline Company Pricing Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015
  17. 17. Mercer Capital’s Value Focus: Auto Dealer Industry Mid-Year 2015 © 2015 Mercer Capital 16 Sources “IBISWorld Industry Report 44111: New Car Dealers in the US” “IBISWorld Industry Report 44112: Used Car Dealers in the US” “NADA Data” 2002-2014.
  18. 18. Mercer Capital Auto Dealer Industry Services Contact Us Copyright © 2015 Mercer Capital Management, Inc. All rights reserved. It is illegal under Federal law to reproduce this publication or any portion of its contents without the publisher’s permission. Media 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 Mercer Capital has expertise providing business valuation and financial advisory services to companies in the auto dealer industry. Mercer Capital provides business valuation and financial advisory services to auto dealerships throughout the nation. We provide valuation services for tax purposes, buy-sell agreements, partner buyouts, and other corporate planning purposes. Mercer Capital also works with owners who are considering the sale of their dealership or the acquisition of other dealership(s). Services Provided • Valuation of auto dealer industry companies • Transaction advisory for mergers, acquisitions and divestitures • Valuations for purchase accounting and impairment testing • Fairness and solvency opinions • Litigation support for economic damages and valuation and shareholder disputes Contact a Mercer Capital professional to discuss your needs in confidence. Timothy R. Lee, ASA 901.322.9740 Matthew R. Crow, CFA, ASA 901.685.2120 Nicholas J. Heinz, ASA 901.322.9788 Chad M. Giganti 901.322.9746 MERCER CAPITAL Memphis 5100 Poplar Avenue, Suite 2600 Memphis, Tennessee 38137 901.685.2120 Dallas 12201 Merit Drive, Suite 480 Dallas, Texas 75251 214.468.8400 Nashville 102 Woodmont Blvd., Suite 231 Nashville, Tennessee 37205 615.345.0350 BUSINESS VALUATION & FINANCIAL ADVISORY SERVICES
  19. 19. 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 en- ergy 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 COMBINING CULTURES OF EXCELLENCE