Dealerships Are Far Too Valuable To Be Sold Any Other Way
I. Buy/Sell Activity
II. Market Drivers
III. The Look Ahead
IV. Buy-Sell Multiples
Overview of Session
Lots of Activity in
the Buy/Sell Market
114 Transactions
206 Transactions
241 Transactions
242 Transactions
2013 2014 2015 2016 LTM
Source: The Banks Report
Number of Transactions
2013 to 2016 LTM
Acquisition Activity Has Grown 112% Since 2013
“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
Average Franchises per
Multi-Dealership Transaction
Size of Average Transaction Continues to Rise
2.8
4.9
Q1 2015 Q1 2016
81 Stores
13 Stores
11 Stores
11 Stores
Manufacturers Approve Large Multi-Dealership Transactions
12 Stores
12 Stores
5 Large New Entrants Represented 29% of 2015 Acquisitions
The Five Most Active New Entrants in 2015
1. Berkshire Hathaway Automotive
2. McLarty Automotive
3. RFJ Auto Partners
4. Fremont Private Holdings
5. ZT Motor Holdings6 Public Dealership
Groups38 Franchises
7%
New Entrants165 Franchises
29%
Private Dealership Groups
355 Franchises64%
2015 Buyers by Type
Source: The Banks Report and Kerrigan Advisors Analysis
Source: The Banks Report
Domestic53 Franchises
32%
Import Luxury29 Franchises
18%
Import Non-Luxury
83 Franchises50%
Franchises Acquired by New Entrants
New Entrants Focused on Non-Luxury and High ROI
Source: SEC Filings
Public Dealership Group Acquisition Spending
in US Since 2009
Public Acquisition Spend Very Strong
$211$504 $502
$659$860 $832
$590
2009 2010 2011 2012 2013 2014 2015
Domestic Acquisitions Lithia/DCH
$162
$271
Q1: 15 Q1: 16
Domestic Acquisitions
99%
84%
16%
2015 Q1 2016
US International
Public Acquisition Spending
US versus International
1%
International Acquisitions Provide Attractive ROI
US Dealership Market Share
Source: Automotive News
14,703 dealerships are owned
By small groups and individuals
Auto Retail Remains Highly Fragmented
5.5%
81.7%
12.8%
Top 125 Dealership Groups Small Dealership Groups
Non-Public Dealerships
Public Dealership Groups
Why are Dealers
Selling?
$279,685
$1,166,675
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Average Dealership Earnings
Average Dealership Earnings at Peak Levels?
2000-2007
Average Earnings $542,881
New Normal
or Peak?
The Kerrigan Auto Retail Index – THE KAR INDEX™
TMTHE KAR INDEX
472.937/15/2016 - Market Close
0
100
200
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
KAR Index S&P 500 (rebased)
Ticker Company
AN AutoNation
PAG Penske Automotive Group
LAD Lithia Motors
ABG Asbury Automotive Group
GPI Group 1 Automotive
SAH Sonic Automotive
KMX CarMax
Green Street Commercial Property Price Index
Source: Green Street Advisors & Wall Street Journal
Real Estate Values Increasingly Drive Up Transaction Pricing
$125
$60
$70
$80
$90
$100
$110
$120
$130
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
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:
$13,100,000
Annual Rent @ 7%:
$700,000
Earnings Before
Taxes: $800,000
Total Blue Sky
and Real Estate:
$14,800,000
Real Estate at
7% Cap Rate:
$7,100,000
Blue Sky @
6x:
$6,000,000
Appraisal:
$10,000,000
Blue Sky @
6x:
$4,800,000
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
Storms
In the
Forecast?
11.612.8
14.515.6
16.517.5 17.8 18.0
11%10%
13%
8%
6% 6%
2%1%
-6%
-1%
4%
9%
14%
19%
-2.0
3.0
8.0
13.0
18.0
23.0
2010 2011 2012 2013 2014 2015 2016E 2017E
TOTAL U.S. Light Vehicle YoY Growth
Source: Automotive News and Kerrigan Advisors Analysis/Estimates
Annual Auto Sales and % Growth
SAAR Plateau?
“We see this kind of
mid-17 [million]
going for a few
years.”
Mary Barra, CEO
GM
CNBC
June 17th, 2016
400
450
500
550
600
650
700
750
THE KAR INDEX
The Kerrigan Auto Retail Index – The KAR Index™
™
472.937/15/2016
709.276/5/2015
Ticker Company
AN AutoNation
PAG Penske Automotive Group
LAD Lithia Motors
ABG Asbury Automotive Group
GPI Group 1 Automotive
SAH Sonic Automotive
KMX CarMax
Public Estimated Blue Sky Multiples Down Since 2014
9.2x 9.1x
7.6x
6.1x
2013 2014 2015 Q1 2016
Blue Sky Multiples
Source: Kerrigan Advisors Analysis
John Rickel, CFO
Group 1 Automotive
February 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.”
52 Months
37 Months
78 Months
63 Months
New Used
2005 2015
Average Length of Car Ownership
Source: HIS Automotive, George Petras, USA Today
50% Increase in Length of New Car Ownership Since 2005
New Car Loans by Term 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
“Let’s Do
the
Numbers”
Blue Sky Multiple Drivers
Average
Blue Sky
Multiple
Adjusted
Blue Sky
Multiple
Lower Multiple
Higher Multiple
High
GrowthHigh
Demand
Franchise
Highly
Suitable
Low Rent/
Image
Low
Growth
Low
Demand
Franchise
Unsuitable
High Rent/
Building
Project
Earnings
Growth
Expectations
Buyer
Demand
Market
Vehicle
Preference
Real
Estate
Kerrigan Advisors Luxury Blue Sky Multiples – June 2016
Luxury Franchise Blue Sky Multiple
Source: Kerrigan Advisors Analysis and Automotive News
8.75 8.75 8.75
8.0 8.0 7.5
3.5 3.5 3.5 3.5
7.0 7.0 7.0
6.0 6.0
4.0
3.0 3.0 3.0 3.0
1
2
3
4
5
6
7
8
9
10
Lexus BMW Mercedes Audi Porsche LandRover -Jaguar*
Acura Infiniti Cadillac Volvo
Sales per Franchise
Kerrigan Advisors Franchises Analysis - Luxury
Franchise Buyer Demand
High
High
High
High
High
High (LR)
Low
Low
Low
Low
Sales Per
Franchise
1,263
833
907
593
259
498 LR
122 Jag
555
631
154
221
Kerrigan Advisors Franchises Analysis - Luxury
Franchise Buyer Demand
High
High
High
High
High
High (LR)
Low
Low
Low
Low
19%
15%
12%
4% 1%
(4%)(7%) (7%) (7%) (8%)
(13%)LR Volvo Jaguar Porsche Audi MB Infiniti Lexus Cadillac Acura BMW
Market Share
Change Q1 2016
vs Q1 2015
-7%
-13%
-4%
+1%
+4%
+19% LR
+12% Jag
-8%
-7%
-7%
+15%
Market Share Change
Kerrigan Advisors Non-Luxury Blue Sky Multiples
Non-Luxury Franchise Blue Sky Multiple
5.0 5.0
4.5
4.0 4.0 4.0
3.0 3.0 3.0 3.0
2.0 2.0
6.5 6.5
6.0
5.0 5.0 5.0
4.0 4.0 4.0 4.0
3.0 3.0
1
2
3
4
5
6
7
1,542
1,373 1,225
915 847 836 794 760
625
426 404 401
Sales per Franchise
Kerrigan Advisors Franchise Analysis – Non Luxury
Franchise Buyer Demand
High
High
High
Increasing
Increasing
Average
Average
Average
Average
Average
Low
Low
Sales Per
Franchise
1,542
1,225
847
625
794
915
401
1,373
836
760
426
404
7% 5% 5% 5%
0%
(0%)(2%) (2%)
(4%)(5%)
(15%)
(20%)
Market Share Change
Kerrigan Advisors Franchise Analysis – Non Luxury
Market Share
Change Q1 2016
vs Q1 2015
-5%
+5%
-2%
-4%
+5%
+5%
-0%
+7%
-2%
+0%
-15%
-20%
Franchise Buyer Demand
High
High
High
Increasing
Increasing
Average
Average
Average
Average
Average
Low
Low
Balancing Act of the Current Buy/Sell Market
New Buyers New Sellers
What does the
Future Hold?
Share of New Light
Vehicle Buyers by Age
Source: JD Power, Wall Street Journal
Population Size
Millennials – The Future of Auto Retail Growth
Over $400 Million in Transaction Proceeds in 2015
Sold To
AMSI
Sold To
KDW Automotive, Inc.
Sold To
AutoNation
Sold To
CarPros
Sold To
McManes Auto Group
MERCEDES-BENZ OF EDMONTON
WESTSold To
Victory Auto Group
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