7:52 am, December 1, 2022
Valuations for car dealer businesses are coming under pressure with uncertainty surrounding agency agreements and the economy.
However, one of the leading automotive business deal makers has told the Car Dealer Podcast that the market for acquisitions is still ‘very strong’.
David Kendrick, partner at accountancy firm UHY Hacker Young, has been helping car dealers sell their businesses for years.
His firm assists around 80 dealer groups with their annual audits, but he spends 60 per cent of his time helping get mergers and acquisitions over the line.
His biggest deal to date was the £64.5m sale of Motorline to Marshall Motor Group at the end of 2021, just a few weeks before the group was sold to Constellation.
Kendrick opens up about the sales process on the Car Dealer Podcast and discusses the week’s headlines.
UHY Hacker Young helped broker the Helston Garages deal which has sold part of the group to Yeomans with the rest going to Vertu Motors and one other group.
‘I think the market still remains pretty buoyant,’ explained Kendrick.
‘There’s a lot of businesses with an awful lot of cash around them who are wanting to spend that money and get a better return from it rather than it just being sat in the bank, so that does help.
‘However, I don’t think you can get away from the fact that there are a few headwinds around the corner. There is a bit of uncertainty creeping in with the economy and, and everything else going on there.’
Kendrick added: ‘Certain businesses are probably well positioned to look at an exit now.
‘However, it does depend on the brand you’ve got it and depends on what that brand’s objectives are for the next few years with regards to agency model.’
Kendrick said the market is ‘very active’ at the moment with around ‘eight to 10’ deals in play.
And he explains that valuations for car dealer businesses typically work on a methodology of ‘balance sheet plus a multiple of profit before tax’.
But increasingly, he said, it’s moving towards a multiple of EBITDA profit of between four-seven times depending on the brands involved and assets.
The Car Dealer Top 100 list of most profitable car dealer groups – the latest instalment of which is coming soon – ranks car dealers on how much money they make on an EBITDA basis.
‘To be clear, that is not a multiple of EBITDA on top of net assets,’ he added. ‘That’s a completely different mechanism.’
Uncertainty
During the Podcast, Kendrick explains that agency models are making the mergers and acquisitions market a little unstable for car dealers.
He said: ‘It’s creating an awful lot of uncertainty because actually, a lot of the manufacturers have not released what agency actually looks like. So how can you forecast what a future business profitability looks like if you don’t know what the margin structure is going to be?
‘Some are going to full agency, some are going for a hybrid agency model. Some are looking at involving used cars, some are excluding used cars. It is really unknown.
‘I think one thing it has done is just create so much uncertainty. And I think it’s fair to say that there aren’t a huge amount of dealers that feel it’s something that’s great because ultimately, the feeling among the people we’re talking to, is it’s a margin grab.’
Kendrick admitted that he had spoken to just ‘one CEO’ out of hundreds of conversations that thought the agency model was a good idea.
You can listen to the full episode by searching for the ‘Car Dealer Podcast’ on your favourite platforms including Spotify and Apple Podcasts, or listen now with the embedded player above.
