dealership industry quarterly update q2 2019 · 2019-08-07 · 3: oem peers: daimler ag...

QUARTERLY UPDATE Q2 2019

DEALERSHIP INDUSTRY

$963 M

$2,175 M

$1,110 M$899 M

$1,329 M $1,050 M$179 M

-

10

20

30

40

50

60

70

80

-

500 M

1,000 M

1,500 M

2,000 M

2013 2014 2015 2016 2017 2018 Q2 2019

Tran

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Num

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Tran

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PUBLICLY DISCLOSED DEALERSHIP TRANSACTIONS (NORTH AMERICA)1

Transaction Value Transaction Volume

INDUSTRY OVERVIEW

1: Capital IQ. Data as of June 30, 2019; SEC Filings via Haig Report.2: https://www.desrosiers.ca/3: https://www.todaystrucking.com/

• Continued consolidation in the industry by independents, multi-store groups and carve-outsfrom larger multi-location groups.

• Location, brand and strength of management is playing an increasingly important role invaluation as industries continue to consolidate.

• Approximately 20.9% of new light vehicle registrations were dedicated to fleets in 2018; anincrease from 19.6% in 2016 to 19.9% in 2017.2

• We are still currently experiencing a seller’s’ market among both independents and multi-location groups, depending on location and company-specific factors, although less so than afew years ago.

• Fragmented marketplace presents an opportunity for merger and acquisition (M&A) activity.• North American Class 8 truck orders continue to decline this year, with preliminary estimates

totaling fewer than 11,000 vehicles this May. The numbers represent respective drops of 27or 29% when compared to April totals.3

• The driver turnover rate at truckload fleets with more than $30 million revenue rose to 83%in Q1 2019, while the rate for smaller truckload carriers fell to 73%.3

• Weak Canadian dollar is impairing margin and performance of Canadian-based dealershipsthat source from the U.S. Trade dispute concerns continue to linger.

• Continued consolidation and interest of remaining independent dealerships with buyer poolshrinking may balance out valuation multiples in line with historical averages.

• Accelerated consolidation amongst Case-IH and New Holland dealers, with a push at the OEMlevel for independents to sell. Valuations can vary significantly by location.

• A few years of difficult crop seasons have pinched farm cash receipts and impacted dealerperformance.

AUTOMOTIVE

HEAVY TRUCK

AGRICULTURE IMPLEMENT

M&A TRANSACTIONS & PERFORMANCE

-

10%

20%

30%

40%

50%

60%

70%

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Pass

enge

r Veh

icle

Sal

es (U

nits

)

CANADIAN PASSENGER VEHICLE SALES1

Cars Light Truck (includes SUVs and crossovers) Domestic (%) Foreign (%)

-48.2%

30.3%

16.4%14.4%

16.5%

40.2%

-60%

-40%

-20%

-

20%

40%

60%

Q2 2016 Q2 2017 Q2 2018 Q2 2019

Three-Year Index Performance2

AutoCanada Inc. US Dealership Peers Domestic OEM PeersForeign OEM Peers TSX S&P 500

Q2 2019 passenger vehicle sales fell short of Q2 2018 by 33,720 units and was the lowest Q2 in four years. The netdecrease in units sold from Q2 2018 was comprised of a decrease of 33,220 cars and 500 light trucks. The split indomestic vs. foreign sales from Q1 2019 to Q2 2019 has remained fairly consistent, although the market remains foreign-vehicle dominated. Overall vehicle sales were comprised of 73% light truck sales in Q2 2019, up from 69% in Q2 2018.

INDUSTRY SNAPSHOT

1: Desrosiers Automotive Consultants monthly reports, July 2015 – June 2019.2: Capital IQ. Data as of June 30, 2019.3: US Dealership Peers: AutoNation, Group 1 Automotive, Asbury Automotive, Sonic Automotive, Lithia Motors and Penske Automotive. Domestic OEMPeers: General Motors, Ford, and Fiat Chrysler. Foreign OEM Peers: Toyota, Honda and Nissan.Note: “LTM” refers to last 12 months.

2018201720162015

AUTOMOTIVE

Q2 2019LTM

7.59%-32.51%

AutoCanada Inc. (Canada’s only publicly traded automotive dealership group) continues to experience heavy pressure onshare price falling 32% in the last 12 months. The domestic and foreign OEM peer groups have experienced modestincreases in share price from 2016, lagging just slightly behind the TSX and S&P 500. Meanwhile, the U.S. dealership peergroup has seen large growth in share price over the past quarter, in sharp contrast to AutoCanada.

AutoCanada Inc.

3 3

3

2019

5 Year AutoCanada Disclosed

M&A Glance1

Total Deal Value ($CAD)

399.0MTotal Number of Transactions

22Average Transaction Value

18.1M

133.6m

63.8m

24.9m 17.0m

159.7m

--

25 M

50 M

75 M

100 M

125 M

150 M

175 M

200 M

2014 2015 2016 2017 2018 Q2 2019

Tran

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AUTOCANADA INC. DISCLOSED ACQUISITION VALUES1

Publicly Disclosed Transaction Values

AUTOCANADA INC. M&A REVIEW1

• The only publicly traded automotive dealership in Canada isAutoCanada Inc. and is, therefore, the closest publicly availablecomparable to a privately-owned car dealership group.

• AutoCanada is one of Canada’s largest multi-location automobiledealership groups, currently operating 64 franchised dealerships inCanada and the U.S. AutoCanada offers 27 brands of vehicles.

• AutoCanada had a large $111 million transaction in March 2018,where they acquired a dealership group of eight locations in the U.S.,making up the bulk of their deal activity in 2018.

• With the recent expansion into the U.S., aggregate transaction valuesfor AutoCanada Inc. surpassed the last high seen in 2014.

• AutoCanada has completed the sale and leaseback of several of itsdealership properties over the past year.

• There have been no publicly disclosed acquisitions by AutoCanada inthe first half of 2019.

• AutoCanada is currently in the middle of a $250M lawsuit involvingthe former CEO.

1: Capital IQ. Data as of June 30, 2019. M&A summary data is based on publicly disclosed transactions. Not all transactions have disclosed financialinformation. Currency in CAD.

AUTOMOTIVE

INDUSTRY SNAPSHOT

50.4%

7.8%

16.7%16.5%

40.2%

-

20%

40%

60%

80%

Q2 2016 Q2 2017 Q2 2018 Q2 2019


Penske Automotive Group, Inc. Cervus Equipment Corporation OEM Peers

TSX S&P 500

-6%

-4%

-2%

-

2%

4%

6%

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1-

100 M

200 M

300 M

400 M

500 M

Net

Prof

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Tax

(% o

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Heav

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Sale

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PENSKE & CERVUS HEAVY TRUCK DIVISION PERFORMANCE1

Penske Heavy Truck Sales ($) Cervus Heavy Truck Sales ($)Penske Heavy Truck Net Profit (%) Cervus Heavy Truck Net Profit (%)

Q2 2019LTM

-8.38%-14.75%

2

Penske Automotive Group is a publicly traded, global dealership group. While their focus is on automotive, Penske alsohas a heavy truck division. Cervus Equipment Corporation is a global agricultural, construction and heavy truck dealershipgroup. While agriculturally focused, Cervus generates approximately 25% of its sales from its Peterbilt heavy truckdivision. Heavy truck revenues and net profit margins from these two publicly comparable companies have been isolatedin order to gauge divisional performance as a metric for the industry in general.

1: Capital IQ. Data as of June 30, 2019.2: Penske Automotive Group and Cervus Equipment Corporation are both diversified companies, therefore the share price performances shown aboveare not inherently related to the performance of their heavy truck divisions.3: OEM Peers: Daimler AG (Freightliner, Western Star), AB Volvo (Volvo, Mack), Navistar (International) and PACCAR Inc. (Kenworth, Peterbilt).

Penske Automotive Group has seen high volatility in share price over the past three years, currently 50% higher than Q22016. Since Q2 2018 it has exhibited fairly strong correlation to the S&P 500 index and outpacing both the S&P 500 andTSX indices. Cervus Equipment has experienced an overall increasing trend since Q1 2016, but with volatility. The heavytruck OEM peer group has declined dramatically over the past year but rebounded in Q2 2019. Both peer groups arelagging behind the S&P 500, but are in line with the TSX.

HEAVY TRUCK

INDUSTRY SNAPSHOT

20172016

3

Cervus Equipment

Q2 2019LTM

5.94%0.96%

Penske Automotive

2

2018 2019

46.1%

72.9%

16.5%

40.2%

-

20%

40%

60%

80%

100%

Q2 2016 Q2 2017 Q2 2018 Q2 2019


Dealership Peers OEM Peers TSX S&P 500

-

2 B

4 B

6 B

8 B

10 B

12 B

100 M

150 M

200 M

250 M

300 M

350 M

400 M

450 M

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Farm

Cas

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($CA

D Bi

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s)

Reve

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($CA

D M

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REVENUE1 VS. FARM CASH RECEIPTS2 PER QUARTER

Rocky Mountain Equipment Cervus Equipment Farm Cash Receipts (AB, SK, MB)

Farm cash receipts display a defined pattern of drastic annual fluctuations, as cash receipts are a lagging indicator ofagriculture equipment sales. Farm cash receipts have been relatively steady this past year, with the Q1 2019 being justabove 2018 levels. Both Cervus’ and Rocky Mountain Equipment’s Q1 2019 were below Q1 2018. Cervus has declined by6%, while Rocky Mountain Equipment had a more drastic decline of 19%.

The dealership peer group has underperformed the OEM peer group from Q2 2016 to Q2 2019. The dealership peergroup had a strong Q2 2019, increasing in share price by more than 13%, compared to almost 7% by the OEM peer group.The agricultural implement / construction OEM peer group has seen significant TSX index out-performance over the pastthree years.

1: Capital IQ. Data as of June 30, 2019.2: Farm product prices, crops and livestock – Statistics Canada.3: Dealership Peers: Rocky Mountain Equipment, Cervus and Titan Machinery. OEM Peers: Deere & Company (John Deere), CNH Industrial (Case IH, NewHolland), Kuboto Corp., Caterpillar Inc. (CAT) and AGCO Corporation (Massey Ferguson).

2017201620152014

AGRICULTURAL IMPLEMENT

INDUSTRY SNAPSHOT

Q2 2019LTM

13.51%5.50%

Dealership Peers

Q2 2019LTM

3.48%6.61%

OEM Peers

3 3

2018 2019

MACROECONOMIC INDICATORS

-

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

%

PRIME INTEREST RATE2

95

98

101

104

107

110

113

116

119

Inde

x

CONSUMER CONFIDENCE INDEX1

25,000

28,000

31,000

34,000

37,000

40,000

43,000

CAD

PER CAPITA DISPOSABLE INCOME1

1.75

1.80

1.85

1.90

1.95

2.00

2.05

2.10

2.15

CAD

Mill

ions

NEW VEHICLE SALES1

The key external drivers that affect the various dealership industries in Canada include: new vehicle sales, per capitadisposal income, consumer confidence index, prime interest rate, gross domestic product, farm cash receipts and cropcommodity prices. In general, most key industry drivers point toward a positive industry outlook. The Bank of Canadainterest rate increased in 2018 to 1.75%, but in their April 24, 2019 report alluded to a long-term holding pattern. It isunlikely rate increases in 2018 would have a material impact on vehicle purchases, despite the slightly higher costsassociated with leasing and dealership profitability due to higher carrying costs of floor plan financing. Recent trade warsand higher consumer borrowing costs may erode consumer confidence.

1: IBISWorld Industry Reports2: Bank of CanadaNote: “F” indicates forecast.

Rates expected to hold steady

Strong Outlook In Industry Drivers

*** Forecasted rebound of 1% in 2019 after drop in 2018 from 2017

***

Expected improvements after three years of declines

MACROECONOMIC INDICATORS

104

106

108

110

112

114

116

-

100

200

300

400

500

600

700

May-17 Nov-17 May-18 Nov-18 May-19

Farm

Inpu

t Pric

e In

dex

CAD/

MT

CROP COMMODITY PRICES2

Wheat - excl. durum Durum Barley Soybeans Grain corn

Flaxseed Canola Lentils Dry peas Farm input price index

-

2 B

4 B

6 B

8 B

10 B

12 B

14 B

16 B

CAD

Billi

ons

FARM CASH RECEIPTS (AB, SK, MB)2

1.3 T

1.6 T

1.9 T

2.2 T

2.5 T

CAD

Trill

ions

GDP - CANADA1

1: IBISWorld Industry Reports2: Farm product prices, crops and livestock – Statistics Canada.

SELECT RECENT M&A TRANSACTIONS

Location Ontario

Date July 2019

• Jim Rose, owner of the 401 Auto RV Group in Canadahas acquired Simcoe Volkswagen in Simcoe, Ont. fromJason Chow.

• With locations all across Ontario, the 401 Auto RVGroup is one of Canada's fastest growing dealer groups,with multiple brands in its portfolio.

acquired

Location BC/Ontario

Date June 2019

• Boyer Auto Group is comprised of 10 locations inCentral Ontario and retails new and used Buick,Cadillac, Chevrolet, GMC, Kia, Mazda, Nissan, Chrysler,Dodge, Jeep and Ram vehicles.

• Country Ford Lincoln is a dealership located inBobcaygeon, Ont. It was sold by FFUN Motor Group, agroup that retails 10 automotive brands in 18dealerships located across Canada.

Location Ontario

Date May 2019

acquired a dealership from

• Automotive Properties Real Estate Investment Trustannounced it has entered into an agreement topurchase a portfolio of three automotive dealershipproperties from AutoCanada Inc. for a total purchaseprice of approximately $30.4 million.

• The three dealership properties are the AbbotsfordVolkswagen property, the Guelph Hyundai propertyand the Wellington Motors property.

acquired three dealership

properties from

Location Ontario

Date June 2019

• Automotive Properties Real Estate Investment Trustannounced it has entered into an agreement with theDilawri Group to acquire the Audi Queenswayautomotive dealership property for $36.5 million.

• Dilawri Group of Companies is one of Canada's largestautomotive groups with 72 franchised dealershipsrepresenting 30 automotive brands throughoutQuebec, Ontario, Saskatchewan, Alberta and BritishColumbia.

acquired a dealership

property from

PUBLIC COMPARABLE ANALYSISGROWTH, MARGINS & MULTIPLES

13%

10%

9%

4%

4%

4%

- 2% 4% 6% 8% 10% 12% 14%

Agriculture Implement / Construction OEMs

Heavy Trucks OEMs

Automobile OEMs

Agriculture Implement / Construction Dealerships

Heavy Truck Dealerships

Automotive Dealerships

Median EBITDA Margin (LTM)1

0%

-6%

0%

0%

1%

0%

-7% -6% -5% -4% -3% -2% -1% - 1%


Heavy Trucks OEMs

Automobile OEMs




Median Revenue Growth (NTM)1

11%

17%

1%

8%

5%

2%

- 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%


Heavy Trucks OEMs

Automobile OEMs




Median Revenue Growth (LTM)1

7%

-1%

7%

1: Capital IQ. Data as of June 30, 2019Note: “LTM” refers to last 12 months. “NTM” refers to next 12 months.

PUBLIC COMPARABLE ANALYSISGROWTH, MARGINS & MULTIPLES

10.2x

10.0x

9.8x

16.6x

11.2x

12.4x

- 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x


Heavy Trucks OEMs

Automobile OEMs




Median EV/EBITDA (NTM)1

10.6x

10.0x

7.6x

14.0x

11.5x

11.5x

- 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x


Heavy Trucks OEMs

Automobile OEMs




Median EV/EBITDA (LTM)1

14%

11%

9%

4%

4%

4%

- 2% 4% 6% 8% 10% 12% 14% 16%


Heavy Trucks OEMs

Automobile OEMs




Median EBITDA Margin (NTM)1

8%

11.9x

11.7x

1: Capital IQ. Data as of June 30, 2019.Note: “LTM” refers to last 12 months. “NTM” refers to next 12 months. EV/EBITDA multiples may include real estate.

PUBLIC COMPARABLE ANALYSISTRADING MULTIPLES AND OPERATING STATISTICS

1: Capital IQ. Data as of June 30, 2019.Note: LTM refers to last twelve months. NTM refers to next twelve months. EV/EBITDA multiples may include real estate.

CAD Millions

CompanyMarket

CapitalizationEnterprise

Value RevenueRevenue Growth EBITDA

EBITDA Margin

Revenue Growth

EBITDA Margin

NTM EV/EBITDA

LTM EV/EBITDA LTM EV/REV

Automotive DealershipsAutoCanada Inc. $315 $1,759 $3,270 6.1% $67 2.0% 1.6% 3.4% 15.8x 26.4x .5xAutoNation, Inc. $4,894 $13,760 $28,248 (2.4%) $1,218 4.3% (2.2%) 4.5% 11.0x 11.5x .5xGroup 1 Automotive, Inc. $1,908 $6,037 $15,437 0.7% $636 4.1% (2.3%) 3.6% 11.1x 9.7x .4xAsbury Automotive Group, Inc. $2,153 $4,909 $9,270 6.5% $476 5.1% 1.1% 4.5% 11.8x 10.5x .5xSonic Automotive, Inc. $1,316 $4,867 $13,285 (0.4%) $504 3.8% (2.6%) 3.0% 12.7x 9.9x .4xLi thia Motors , Inc. $3,597 $8,387 $16,054 14.3% $730 4.5% 1.8% 4.2% 12.4x 11.7x .5xPenske Automotive Group, Inc. $5,176 $16,378 $30,210 2.5% $1,198 4.0% (0.3%) 3.5% 15.3x 14.0x .6xMedian $2,153 $6,037 $15,437 2.5% $636 4.1% (0.3%) 3.6% 12.4x 11.5x .5xMean $2,765 $8,014 $16,539 3.9% $690 4.0% (0.4%) 3.8% 12.9x 13.4x .5xHeavy Truck DealershipsPenske Automotive Group, Inc. $5,176 $16,378 $30,210 2.5% $1,198 4.0% (0.3%) 3.5% 15.3x 14.0x .6xCervus Equipment Corporation $188 $525 $1,336 7.8% $58 4.3% 1.4% 5.2% 7.0x 9.0x .4xMedian $2,682 $8,451 $15,773 5.2% $628 4.2% 0.6% 4.4% 11.2x 11.5x .5xMean $2,682 $8,451 $15,773 5.2% $628 4.2% 0.6% 4.4% 11.2x 11.5x .5xAgriculture Implement / Construction DealershipsRocky Mounta in Dealerships Inc. $150 $654 $1,009 4.1% $47 4.6% 0.4% 3.6% 16.6x 14.0x .6xCervus Equipment Corporation $188 $525 $1,336 7.8% $58 4.3% 1.4% 5.2% 7.0x 9.0x .4xTi tan Machinery Inc. $587 $1,237 $1,742 10.6% $74 4.2% 0.2% 4.1% 17.1x 17.2x .7xMedian $188 $654 $1,336 7.8% $58 4.3% 0.4% 4.1% 16.6x 14.0x .6xMean $309 $805 $1,362 7.5% $60 4.4% 0.7% 4.3% 13.6x 13.4x .6xAutomobile OEMsGenera l Motors Company $71,487 $195,181 $194,908 1.0% $18,296 9.4% (1.3%) 13.9% 7.3x 10.9x 1.0xFiat Chrys ler Automobi les N.V. $28,609 $32,951 $163,449 5.2% $13,252 8.1% (0.1%) 11.2% 1.8x 2.5x .2xFord Motor Company $53,386 $227,595 $212,140 (0.5%) $16,728 7.9% (10.3%) 8.7% 13.7x 13.9x 1.1xDaimler AG $77,909 $275,870 $250,924 1.2% $21,880 8.7% 0.2% 9.4% 10.6x 12.7x 1.1xHonda Motor Co., Ltd. $59,471 $119,808 $191,644 3.4% $18,377 9.6% (0.4%) 8.1% 7.7x 6.5x .6xNissan Motor Co., Ltd. $36,641 $121,489 $139,605 (3.2%) $17,325 12.4% (2.3%) 6.7% 13.3x 7.0x .9xToyota Motor Corporation $229,895 $423,914 $364,574 2.9% $55,725 15.3% 1.6% 11.7% 9.8x 7.6x 1.2xMedian $59,471 $195,181 $194,908 1.2% $18,296 9.4% (0.4%) 9.4% 9.8x 7.6x 1.0xMean $79,628 $199,544 $216,749 1.4% $23,083 10.2% (1.8%) 10.0% 9.2x 8.7x .9xHeavy Trucks OEMsAB Volvo (publ ) $42,188 $56,556 $60,016 18.1% $7,023 11.7% (6.5%) 14.3% 6.8x 8.6x 1.0xNavis tar International Corporation $4,468 $10,239 $15,257 24.2% $988 6.5% (5.2%) 7.6% 9.3x 10.6x .7xPACCAR Inc $32,474 $40,904 $32,518 16.6% $4,481 13.8% (7.9%) 12.1% 11.2x 9.3x 1.3xDaimler AG $77,909 $275,870 $250,924 1.2% $21,880 8.7% 0.2% 9.4% 10.6x 12.7x 1.1xMedian $37,331 $48,730 $46,267 17.3% $5,752 10.2% (5.9%) 10.8% 10.0x 10.0x 1.0xMean $39,260 $95,892 $89,679 15.0% $8,593 10.2% (4.9%) 10.9% 9.5x 10.3x 1.0xAgriculture Implement / Construction OEMsDeere & Company $68,712 $123,473 $52,503 18.3% $8,177 15.6% (12.6%) 15.9% 16.9x 15.5x 2.4xCNH Industria l N.V. $18,143 $45,740 $36,661 2.8% $3,774 10.3% 4.6% 9.1% 13.1x 12.4x 1.3xKubota Corporation $26,749 $35,242 $22,946 7.2% $3,054 13.3% 3.7% 13.6% 11.0x 11.5x 1.5xCaterpi l lar Inc. $101,952 $141,487 $73,951 14.1% $14,915 20.2% 0.5% 19.9% 9.4x 9.7x 2.0xAGCO Corporation $7,791 $10,224 $12,484 7.5% $1,141 9.1% 0.0% 9.2% 8.9x 9.2x .8xAB Volvo (publ ) $42,188 $56,556 $60,016 18.1% $7,023 11.7% (6.5%) 14.3% 6.8x 8.6x 1.0xMedian $34,469 $51,148 $44,582 10.8% $5,399 12.5% 0.3% 13.9% 10.2x 10.6x 1.4xMean $44,256 $68,787 $43,093 11.3% $6,347 13.4% (1.7%) 13.7% 11.0x 11.1x 1.5x

(Figures In CAD Millions, except percentages and ratios)1

LTM Operating Figures NTM Consensus Estimates Valuation

MNPCF – LEADERSHIP TEAM

DUE DILIGENCE LEADERSHIP

TRANSACTION LEADERSHIP

Aleem BandaliManaging Director

[email protected]

Dale AntonsenManaging Director

[email protected]

John CaggianielloManaging Director

[email protected] 416.513.4177

Brett FranklinPresident

[email protected]

Mike ReynoldsManaging Director

[email protected]

Johnny EarlManaging Director

[email protected] 604.637.1514

Dan PorterManaging Director

[email protected]

Stephen ShawManaging Director

[email protected]

Kevin TremblayManaging Director

[email protected]

Mark RegehrManaging Director

[email protected]

Craig MaloneyManaging Director

[email protected]

Patrick KhouzamManaging Director

[email protected]

Jason BurgessManaging Director

[email protected]

Erik St-HilaireManaging Director

[email protected]

MNPCF – RECENTLY CLOSED DEALS

NATIONAL

dealership industry quarterly update q2 2019 · 2019-08-07 · 3: oem peers: daimler ag...

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