Post on 07-Feb-2017
transcript
Dealerships Are Far Too Valuable To Be Sold Any Other Way
Buy/Sell Activity Market Drivers Valuation Trends Recent Seller’s Panel
Overview of Session
Lots of Activity in the Buy/Sell Market
Lots of Activity in the Buy/Sell Market
Source: The Banks Report
Number of Transactions2013 to 2015
Acquisition Activity Grew 111% since 2013
2013 2014 2015
114 Transac-tions
206 Transac-tions
241 Transac-tions
81%
Increas
e
17%
Increase
“Some of these big deals come in as package deals. When it is one store and they are selling them as a bundle, it is hard to exercise our right of refusal.”
Steve Cannon, Prior CEO of Mercedes-Benz USA, July 2015 Automotive News
2014 2015
3.2
6.3
Average Franchises per Multi-Dealership Transaction
Sold Dealership Groups Double in Size in 2015
Big Players Find Big Exits
81 Stores
13 Stores
11 Stores
8 Stores
11 Stores
McLarty Auto
The Largest Transactions Announced or Closed in 2015
Public 7%
New29%
Private64%
2015
Public22%
Private78%
2014
Source: The Banks Report
New Entrants Dominate Platform Acquisitions
Buyer Market Share
AutoNation Dramatically Increases Number of Acquisitions
“We're very patient, we've been very patient for a very long time. But I've always said, when the opportunity is there, we will move and we're in one of those periods.”
Mike Jackson, CEOAutoNation (AN)3rd Quarter Earnings Call
AutoNation’s Dealership Acquisitions2014 versus 2015
2014 2015
5
22
Source: SEC Filings
4 tim
es
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
$767$570
$1,046
$392
$803$654
$283$14 $211
$504 $502$659
$1,449
$832
Source: SEC Filings
Public Dealership Group Acquisition Spending in USSince 2002
- 43%
The Publics Acquisition Spending Declines in 2015
US Dealership Market Share
Source: Automotive News
14,930 dealerships are ownedBy small groups and individuals
Top 125 Dealership Groups
Small Dealership Groups and Individual Dealers
5.2%
82.9%
0.118166666666667
Non-Public DealershipsPublic Dealership Groups
The Publics Own Just 5.2% of US Dealerships – Auto Retail Remains Fragmented
Time to Take Chips Off the Table
How Many More Wild Rides?
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$279,685
$1,166,675
Source: NADA and Kerrigan Advisors Analysis
Average Dealership Earnings
Average Dealership Earnings at Peak Levels?
2000-2007Average Earnings $542,881
2008-2015
23% Compound Annual Growth
New Normal or Peak?
1/3/20
00
9/3/20
00
5/3/20
01
1/3/20
02
9/3/20
02
5/3/20
03
1/3/20
04
9/3/20
04
5/3/20
05
1/3/20
06
9/3/20
06
5/3/20
07
1/3/20
08
9/3/20
08
5/3/20
09
1/3/20
10
9/3/20
10
5/3/20
11
1/3/20
12
9/3/20
12
5/3/20
13
1/3/20
14
9/3/20
14
5/3/20
15
1/3/20
160
100
200
300
400
500
600
700
800
Source: SEC Filings
THE KAR INDEX
Introducing The Kerrigan Auto Retail Index – THE KAR INDEX™
12/31
/2015
563.02 2015.12.31 – Market Close
Publics - Net Sellers
Some Buy/Sells
Distress
Market Takes O
ff
968% Rise (N
ov. 2008-Ju
ne 2015)
™
Green Street Commercial Property Price Index
Source: Green Street Advisors & Wall Street Journal
Real Estate Values Increasingly Drive Up Transaction Pricing
“For the right store and the right location, we're probably paying 20% to 25% more money than we did two or three years ago.”
Roger Penske, CEOPenske Automotive Group 3rd Quarter Earnings Call 20152007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$60
$70
$80
$90
$100
$110
$120
$130$121
Higher Real Estate Values Result in Higher Transaction Values
Higher Real Estate Values Result in Higher Transaction Values
Annual Rent: $500,000
Earnings Before Taxes: $1,000,000
Total Blue Sky and Real Estate:
$11,100,000
Annual Rent @ 7%: $700,000
Earnings Before Taxes: $800,000
Total Blue Sky and Real Estate:
$13,200,000
Real Estate at7% Cap Rate:
$7,100,000
Blue Sky @ 4x:
$4,000,000
Appraisal: $10,000,000
Blue Sky @ 4x:
$3,200,000
Blue Sky Multiple
Real Estate Multiple
Multiples Cap Rates
3 33%4 25%5 20%6 17%7 14%8 13%9 11%
10 10%11 9%12 8%13 8%14 7%
Real Estate Values and Transaction Values
Luck Running Out?
Source: SEC Filings
THE KAR INDEX
The Kerrigan Auto Retail Index – The KAR Index™
6/5/20
15
6/22/2
015
7/9/20
15
7/26/2
015
8/12/2
015
8/29/2
015
9/15/2
015
10/2/
2015
10/19
/2015
11/5/
2015
11/22
/2015
12/9/
2015
12/26
/2015
1/12/2
016
1/29/2
016
2/15/2
016
400
450
500
550
600
650
700
750
KAR - Kerrigan Auto Retail Index
470.12 2016.2.29 – Market Close
709.27 2015.6.5 – Market Close
Down 33.7%
™
New Used
52 Months
37 Months
78 Months
63 Months
2005 2015
Average Length of Car Ownership
50%
70%
Source: HIS Automotive, George Petras, USA Today
50% Increase in Length of New Car Ownership Since 2005
New Car Loans by TermIn Q1 2015
29.5%
39.7%
21.3%
9.5%73-84 Months
61-72 Months
49-60 Months
Other
70% of New Car Loans Longer Than 5 Years
2010 2011 2012 2013 2014 2015 2016E 2017E0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
0%
2%
4%
6%
8%
10%
12%
14%
16%
11.6 12.8
14.5 15.6
16.517.5 17.8 17.8
Total U.S. Light Vehicle YoY Growth
Source: Automotive News and Kerrigan Advisors Analysis/Estimates
17+ Million Sales Means Slower Future Growth
Update
11% 10%
13%
6%6%
2%
0%
Annual Auto Sales and % Growth
8%
Plateau?
Public Dealership Groups’ Average P/E Multiple
22.2x
Public P/E Multiples Down Since 2014
Source: Yahoo Finance and BofA
John Rickel, CFOGroup 1 AutomotiveFebruary 2016 4th Quarter Earnings Call
“The hurdle to have an acquisition is steeper than it would have been. Our shares are, obviously, a very attractive alternative for capital allocation at these prices.”
Q1 2016
2015
2014
2013
10.8x
12.7x
15.6x
15.6x
Public Estimated Blue Sky Multiples Down Since 2014
2013 2014 2015 Q1 2016
9.2x 9.1x
7.6x
6.3x
Blue Sky Multiples
Source: Kerrigan Advisors Analysis
Publics Estimated Blue Sky Multiples 2016 AUTOMOTIVE Q3:2015 MULTIPLES
($ in millions) AutoNation Penske Group 1 Asbury Sonic Lithia Total
Market Cap (as of 03/18/16) $5,385 $3,522 $1,370 $1,480 $875 $2,348 $14,980
Net Assets (515) (104) - (136) (177) (457) (1,389)
Estimated Blue Sky 4,870 3,418 1,370 1,345 698 1,891 13,591
Adjusted EBIT $715 $498 $221 $255 $194 $264 $2,147Blue Sky Multiple 6.8x 6.9x 6.2x 5.3x 3.6x 7.2x 6.3xSource: Kerrigan Advisors and SEC Public Filings
30% Decline
Kerrigan Advisors Luxury Blue Sky Multiples – March 2016
Luxury Franchise Blue Sky Multiple
Source: Kerrigan Advisors Analysis and Automotive News
Lexus BMW Mercedes Audi Porsche Land Rover - Jaguar*
Acura Infiniti Cadillac Volvo1
2
3
4
5
6
7
8
9
10
Ker
riga
n A
dvis
ors
Blu
e Sk
y M
ultip
les
Sales per Franchise
Lexus BMW Mercedes Audi Acura Infiniti Land Rover
Porsche Volvo Cadillac Jaguar
1,466
1,021 1,019
714 649 645
423 274 237 189
88
Land
Rov
erVolv
oInf
initi
Audi
Lexu
s
Porsch
eAcu
ra
Merced
es
Cadilla
cBMW
Jagu
ar
29.8%
17.6%
7.7% 5.1% 4.7% 4.2%
(0.1%)(0.9%)(2.9%)(3.6%)
(13.2%)
Market Share ChangeSales Per Franchise
1,466
1,021
1,019
714
274
423 LR 88 Jag
649
645
189
237
Market Share Change 2015 vs
2014
5%
-4%
-1%
+5%
+4%
+30% LR -13% Jag
-0%
+8%
-3%
+18%
Average Dealership Profitability
Consistently High Aa3
Consistently High A2
Consistently High A3
Consistently High A2
Consistently High A2
Consistently High (LR) Ba2
Consistently Low A1
Consistently Low A3
Consistently Low Ba1
Consistently Low Baa2
Franchise Buyer Demand
High
High
High
High
High
High (LR)
Low
Low
Low
Low
Kerrigan Advisors Franchises Analysis - Luxury
Average Dealership Profitability
Moody's Credit Rating
Consistently High Aa3
Consistently High A2
Consistently High A3
Consistently High A2
Consistently High A2
Consistently High (LR) Ba2
Consistently Low A1
Consistently Low A3
Consistently Low Ba1
Consistently Low Baa2
Domestic53
32%
Import Luxury29
18%
Import Non-Luxury83
50%
Source: The Banks Report
Over 80% of Franchises Acquired by New Entrants are Non-Luxury
Franchises Acquired by New Entrants
Non-Luxury Franchise Blue Sky Multiple
Source: Kerrigan Advisors Analysis and Automotive News
Toyota Honda Subaru Chevy Ford CJDR Buick/GMC
Nissan Hyundai Kia VW Mazda1
2
3
4
5
6
7
Kerr
igan
Adv
isor
s Bl
ue S
ky M
ultip
les
Kerrigan Advisors Non-Luxury Blue Sky Multiples – March 2016
Sales per Franchise
Toyota Honda Subaru Chevrolet Ford Chrysler Nissan Hyundai Kia VW Mazda GMC Buick
1,698
1,350 1,262
932 932 919 813 771 703
537 499 401
Market Share Change
Subaru Kia
Chrysler G
roupNiss
an
GMC Buick Ford
Hyundai
Toyota
Chevrolet
MazdaHonda
VW
7%
2% 2% 1% 1%
(0%) (1%) (1%) (1%) (1%)(3%)
(10%)
Franchise Buyer Demand
High
High
High
Increasing
Increasing
Average
Average
Average
Average
Average
Low
Low
Sales Per Franchise
1,698
1,350
932
703
771
932
401
1,262
919
813
537
499
Market Share Change FY 2015
vs FY 2014
-1%
-3%
+7%
-1%
-0%
+2%
+1%
+1%
-1%
+2%
-10%
-1%
Average Dealership Profitability
Consistently High Aa3
Consistently High A1
Variable NA
Variable Ba1
Variable Baa3
Variable B1
Variable Ba1
Variable A3
Variable Baa1
Variable Baa1
Consistently Low A2
Consistently Low NA
Kerrigan Advisors Franchise Analysis – Non Luxury
Average Dealership Profitability
Moody's Credit Rating
Consistently High Aa3
Consistently High A1
Variable NA
Variable Ba1
Variable Baa3
Variable B1
Variable Ba1
Variable A3
Variable Baa1
Variable Baa1
Consistently Low A2
Consistently Low NA
75.6m 54m
76.6 m
Share of New Light Vehicle Buyers by Age
Source: JD Power, Wall Street Journal
* Through Nov
Millennials14-34
Gen-Xers35-47
Boomers48-66
Matures67+
Population Size
76.6 m39.9m
Millennials – The Future of Auto Retail Growth
Delicate Balancing
Act
Sam Swope Auto GroupSold December 10, 2015
ToAMSI
Renton KiaSold December 9, 2015
ToCarPros
Lexus of GlendaleSold July 21, 2015
ToKDW Automotive, Inc.
Renton HondaSold December 9, 2015
ToAutoNation
David Morris Fine Cars Mercedes-Benz of Edmonton West
Sold November 1, 2015To
McManes Auto Group
15 Dealerships Sold in 2015