BMW, Mini, Hyundai, VW, Mazda see multiples fall, study finds

Jaguar, Land Rover, Ford gain in blue-sky store values

BMW, Mini, Hyundai, VW, Mazda see multiples fall, study finds

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In a seller’s market where dealership values are high, blue-sky multiples rose in the second half of 2013 from first-half levels for three brands’ dealerships, but softened for five brands’, said Alan Haig, president of Haig Partners, a dealership buy/sell advisory firm in Fort Lauderdale, Fla.

The firm detailed its brand-by-brand estimates of blue sky multiples in its Blue Sky Report for year-end 2013, released on Monday.

Blue sky is the intangible value of a dealership expressed as a multiple of adjusted pretax income. Haig Partners estimates the average industry multiple was 4.3 in 2013, up slightly from 2012.

Jaguar, Land Rover and Ford saw their blue-sky multiples increase in the second half, according to the report. But BMW, Mini, Hyundai, VW and Mazda saw theirs decrease. In evaluating blue-sky values, the report tracks Jaguar and Land Rover, and BMW and Mini, as if they were a single entity.

Stable this year

Overall, multiples are likely to be stable throughout 2014, Haig said.

The average multiple is “sort of bumping around the 4.5 number,” he said. “I don’t see that going up a lot. And in fact, when we get to the point when people get concerned about the next recession coming into play, that’s likely to drop sharply.”

But that’s still probably years away, Haig said.

Jaguar Land Rover’s multiple of 4.5 to 5.5, up from 4.0 to 5.0 in the first half of 2013, was buoyed by rising Land Rover sales and profits and promising new products.

Ford was both the top market-share gainer among domestic brands in 2013 and the most desirable brand, as measured by blue sky. The multiple range rose during the second half of 2013 to 4.0 to 5.0, from 3.5 to 4.5 in the first half, Haig Partners estimates.

Blue sky high
Blue-sky values, expressed as a multiple of adjusted pretax income, stayed flat for most brands during the last six months of 2013. Previous values, where given, are for the first half of 2013.
 Current blue skyPrevious blue sky
Higher:  
Ford4.0-5.03.5-4.5
Jaguar Land Rover4.5-5.54.0-5.0
   
Lower:  
BMW/Mini5.0-7.05.5-7.5
Volkswagen3.0-4.04.0-4.5
Hyundai3.5-4.54.0-4.5
Mazda2.5-3.53.0-3.75
   
Unchanged:  
Mercedes-Benz5.5-7.5 
Porsche6.0-7.0 
Lexus6.0-7.0 
Audi6.0-7.0 
Acura3.0-4.0 
Infiniti3.0-4.0 
Cadillac3.0-4.0 
Toyota-Scion5.0-6.0 
Honda5.0-6.0 
Kia3.5-4.5 
Subaru3.5-4.5 
Nissan3.0-4.0 
Chrysler-Jeep-Dodge-Ram-Fiat3.25-4.25 
Chevrolet3.0-4.0 
Buick-GMC3.0-3.75 
   
Source: Haig Partners

Luxury brands lead

Overall, luxury brands top the ranking of blue-sky multiples with Mercedes-Benz, BMW/Mini, Lexus, Audi and Porsche attracting the highest range of multiples, the report finds. Mercedes-Benz’s multiples ranged from 5.5 to 7.5, while the other four brands’ multiples all topped out at 7.0.

But BMW’s multiple range is slightly lower than at mid-year 2013: 5.0 to 7.0, vs. 5.5 to 7.5 before, Haig Partners estimates.

Though BMW stores are still in high demand with increasing sales, the blue-sky multiple is handicapped by the manufacturer’s announcement of facility renovation requirements that top $8 million per store on average, the report says.

Among the mainstream import brands, Toyota and Honda maintained the top multiples. Multiples for Hyundai and Volkswagen dropped during the second half of the year, to 3.5 to 4.5 for Hyundai, from 4.0 to 4.5 in the first half, and to 3.0 to 4.0 for Volkswagen, from 4.0 to 4.5, the report said.

Mazda’s multiples slipped to 2.5 to 3.5, from 3.0 to 3.75.

Variances

Haig Partners notes that actual multiples paid in the market can vary significantly based on the attributes of each store and whether they’re in more or less desirable locations.

For example, geography matters a lot when it comes to domestic-brand franchises. Those brands will command higher multiples in a state such as Texas, where trucks sell well, but multiples will be lower in a market such as California, where import-brand sales are strong, the report says.

Haig Partners estimated the average U.S. dealership had a value of about $4 million in blue sky for 2013, up from $3.6 million in 2012.

That $4 million figure was determined by taking Haig Partners’ estimate of the industry’s average blue sky of 4.3 for 2013, and multiplying it by the National Automobile Dealers Association’s average dealership net pretax profit. The latter was $923,248 for 2013, the industry’s third straight record year for net pretax profits, NADA data show.

Or more

Though the average value may be around $4 million, Haig notes that larger dealerships in metro areas are typically worth much more. He has been involved in recent sales with blue sky values in the $20 million to $30 million-plus ranges -- or even over $50 million for a single store with a high-demand brand and location.

The report said blue sky multiples are high for a number of reasons:

• Buyers are confident about the economic outlook.

• Buyers have large amounts of cash available, given the strong performance of their existing dealerships.

• There are more buyers than sellers currently.

• Lenders are offering high loan-to-value financing at low interest rates.

• Dealership acquisitions appear to offer a better return, even at high prices, than alternative investments, given the low interest rate environment and recent bull run in the stock market.

You can reach Amy Wilson at awilson@crain.com.


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