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THEBLUE SKY REPORTA KERRIGAN QUARTERLY

March 2016

Contact Erin Kerrigan: 949-439-6768 | [email protected] Contact Ryan Kerrigan: 949-728-8849 | [email protected] Fairchild, Suite 150 Irvine, CA 92612 | 949-202-2200 | www.kerriganadvisors.com

TM

2015 Full Year Report

Contact Erin Kerrigan: 949-439-6768 | [email protected] Contact Ryan Kerrigan: 949-728-8849 | [email protected] Fairchild, Suite 150 Irvine, CA 92612 | 949-202-2200 | www.kerriganadvisors.com

THE BLUE SKY REPORT™ | 1

DEALERSHIP ACQUISITION ACTIVITY2015 was a record year for dealership buy/sells. The first half of the year was marked by the Van Tuyl transaction – the single largest acquisition in auto retail history. Berkshire Hathaway’s entrance into auto retail paved the way for other non-traditional buyers to follow suit. As the year progressed, a number of iconic multi-dealership groups came to market and were acquired by both established consolidators and these new entrants. New dealership buyers, including family offices, private equity firms, and public conglomerates, acquired 29% of the franchises sold in 2015, a stunning accomplishment (See Chart 1). Kerrigan Advisors believes new entrants will increasingly shape dealership consolidation and meaningfully impact the future of auto retail.

Throughout the year, dealership valuations maintained historically high levels. This was in large part due to attractive acquisition financing which helped support high prices, even in the face of potentially peaking dealership profits (see Chart 2 on the following page). Private buyers offered the most aggressive pricing, while public buyers remained disciplined with their offers, unwilling to complete transactions which could be dilutive to earnings.

Chart 12015 Buyers by TypeSource: The Banks Report & Kerrigan Advisors Analysis

The Five Most Active New Entrants of 2015

Berkshire Hathaway AutomotiveA subsidiary of Berkshire Hathaway

McLarty Automotive Backed by Soros Fund Management and the family offices of La France and J.B. Hunt

RFJ Auto PartnersBacked by The Jordan Company, a private equity firm

Fremont Private Holdings The family office of the Bechtel Family

ZT Motor HoldingsA group of high net worth investors

6 Public Dealership Groups38 Franchises

7%

New Entrants165 Franchises

29%

Private Dealership Groups355 Franchises

64%

Five large new entrants represented 29% of the franchises acquired in 2015, four times the number acquired by the industry’s six publicly traded dealership groups. Kerrigan Advisors expects new entrants to drive indus-try consolidation in 2016 and beyond.


Chart 2Average Dealership EarningsSource: NADA

In addition to the aforementioned trends, Kerrigan Advisors noted the increasing importance of real estate in a transaction. In some cases, buyers based their pricing on a multiple of EBITDAR (earnings before interest, taxes, depreciation, amortization and rent), offering a single price for an entire transaction including real estate. This approach recognizes the importance of real estate to dealership operations. As commercial real estate prices continue to rise and image requirements expand, Kerrigan Advisors believes transaction pricing will be increasingly affected by real estate values.

Another 2015 buy/sell trend was the manufacturer’s use right of first refusal clauses (“ROFR”) in their service and sales agreements. While ROFRs were commonplace in 2015, Kerrigan Advisors notes that an estimated 29 multi-franchise transactions were completed without a ROFR being exercised. In Kerrigan Advisors experience, manufacturers are less likely to exercise their ROFR in multi-dealership transactions and more likely to exercise in a single dealership transaction. This is not surprising given the high stakes associated with the sale of a large group to a single buyer. In that instance, a manufacturer could open itself up to a seller lawsuit, something they would prefer to avoid.

“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

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2000-2007Average Earnings $542,881

New Normal or Peak?


Going forward, Kerrigan Advisors expects the aforementioned drivers of 2015’s buy/sell market to continue into 2016. In addition, Kerrigan Advisors sees four important market trends shaping 2016.

4 New entrants continue to seek large acquisitions 4 Return on investment drives valuations, particularly for larger transactions 4 Blue sky multiples are firmer, less dependent on profit potential 4 Publics’ capital allocation is driven by stock price

The Blue Sky Report™ is informed by Kerrigan Advisors experience representing our clients in today’s active buy/sell market, as well as the research conducted by our firm. We hope you find the information we present informative. We look forward to answering any questions you may have regarding The Blue Sky Report™ or Kerrigan Advisors’ sell-side services.

206Transactions

242Transactions

FY 2014 FY 2015

Chart 3Total Number of Completed Dealership Transactions 2014 vs. 2015 Source: The Banks Report & Kerrigan Advisors Analysis

2015 was a record year. Transaction activity increased 17% as compared to 2014.

Total Acquisition Activity

Transaction activity increased by 17% in 2015 according to The Banks Report, representing a record year for auto retail buy/sells. There were 242 dealership buy/sell transactions in 2015, compared to 206 in 2014.1

1 Note: A transaction is defined as a sale between one buyer and one seller. By way of example, Berkshire Hathaway Automotive’s acquisition of Van Tuyl is considered a single transaction, although it included 78 dealerships and 116 franchises.


Among the franchises being acquired, import franchises saw their market share increase by nearly 10% at the expense of domestic franchises, which lost 10% market share as compared to 2014 (Chart 4). Kerrigan Advisors attributes this shift to an increase in the supply of top import sellers (luxury and non-luxury). Though domestic franchises represent 67% of all US franchises, they accounted for only 36% of the franchises sold in 2015. This discrepancy is a result of the large number of domestic franchises, many of which are small or located in non-metro markets where there are fewer buy/sells.

Import franchises added 10% market share in the buy/sell market in 2015 as compared to 2014, while domestic franchises lost buy/sell market share.

Chart 4Buy/Sell Market Share in 2014 vs. 2015Source: The Banks Report & Kerrigan Advisors Analysis

2015

Domestic35%

Import Luxury22%

Import Non-Luxury43%

2014

Domestic45%Import Luxury

17%

Import Non-Luxury38%


This being said, as you can see from Chart 5, two of the three most actively traded franchises in 2015 were Chevrolet and Ford. Price sensitive buyers appreciate the lower blue sky multiples associated with top domestic franchises (4.0x-5.0x), relative to the top imports (5.0x-6.5x).

Chart 5Franchise Buy/Sell Market Share 2015 Source: The Banks Report and Kerrigan Advisors Analysis

Chevrolet8%

Ford8%

Toyota8%

CDJR7%

Nissan7%

Honda5%

VW5%

Hyundai4%

Buick4%

GMC4%

kia3%

Mercedes3%

Cadillac3%

Mazda3%

Subaru3%

BMW2%

Audi2%

Infiniti2%

Lincoln2%

Volvo2%

“The domestics have been trading at a discount to other franchises in the market and those are very attractive.”

Craig T. Monaghan, President and CEO Asbury Automotive Group (ABG) - Feb 2016


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Public Acquisition Activity

The public retailers’ acquisition spending decreased 42% in 2015 compared to 2014. In 2014, the publics far surpassed their average annual pre-recession acquisition spending of $700M (2000-2007) and reached their highest US acquisition spending in auto retail history - $1.4 billion. This was in large part due to Lithia’s acquisition of DCH which accounted for 40% of 2014’s public acquisition spending. In 2015, faced with stiffer competition from new entrants, the publics found it more difficult to compete for larger group transactions. Of the estimated 558 franchises sold, the publics acquired only 38, representing just 7% of the buy/sell market – one fifth the number acquired by new entrants.

Chart 6Public Auto Dealership Group US Acquisition Spending in Millions Source: SEC Filings for AutoNation, Penske, Group 1, Asbury, Sonic and Lithia

Note: This spending EXCLUDES Penske’s commercial truck acquisitions. $ in Millions

Interestingly, public acquisition spending was entirely US focused in 2015, a notable shift from a few years prior when nearly 30% of acquisition spending was international (see Chart 7).

Public companies spent an estimated $832 million on US auto dealership acquisitions in 2015, a 42% decrease over 2014.


*Note: Sonic did not make any acquisitions in 2015

Chart 7Public US vs. International Acquisition SpendingSource: SEC Filings for AutoNation, Penske, Group 1, Asbury, Sonic, and Lithia

AutoNation was the most acquisitive of the publics in 2015, acquiring twenty-two dealerships, representing $1 billion in revenue. 2016 will also be a strong year for the company with the expected completion of the Allen Samuels Auto Group acquisition, representing $950M in revenue and 12 dealerships. This level of activity represents a sizable increase over previous years; however, it may not portend the future.

AutoNation’s stock price has declined 22 percent since its peak on 07/17/15 and its enterprise value to EBITDA multiple is currently 8.3x, making fewer transactions accretive to earnings (this topic will be further discussed in the trends section on page 9).

Chart 8Transactions Completed by the Publics in 2015Source: Company Filings

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25%

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US International

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64 3 2

Autonation Lithia Penske Group 1 Asbury


Private dealers also have access to acquisition financing at rates that rival the publics and are not limited by the short-term performance expectations of Wall Street. Private buyers can increase their leverage and invest with a long-term perspective which often allows them to price acquisitions higher than the publics.

Chart 9 Number of Franchises Acquired By Type of Buyer 2014 vs. 2015 Source: The Banks Report and Kerrigan Advisors researchNote: If a transaction includes multiple franchises, each franchise is counted in this analysis.

Private Acquisition ActivityThe private sector, including new market entrants, dominated the buy/sell market in 2015. Kerrigan Advisors expects private dealership groups to drive industry consolidation in 2016, in part because they are not usually subject to framework agreements which limit the publics’ ability to make large multi-dealership acquisitions.

The publics saw their share of franchises acquired decline by 67% in 2015. While AutoNation was very active, the lack of a Lithia/DCH size transaction reduced their overall share of the buy/sell market.

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2014 2015New Entrants Public Private


2016 BUY/SELL TRENDSIn 2015, dealership valuations rose to historically high levels, new entrants made sizable acquisitions, manufacturers approved numerous multi-dealership transactions, and real estate prices returned to pre-recession levels. In summary, it was a year that is hard to beat. While the 2016 buy/sell market is expected to be as active as 2015, Kerrigan Advisors anticipates the proportion of sellers completing a successful sale could decline as industry growth plateaus and dealership earnings come under pressure.

Much like the change in tone from AutoNation’s CEO, Mike Jackson, seen above, Kerrigan Advisors sees a buy/sell market caught between competing forces, weighing the momentum of recent boom years against clear signs of change. As such, the outlook begins to look hazier. The following forces could push prices and transaction activity up or down, depending on their relative influence. 4 New entrants continue to seek large acquisitions 4 Return on investment drives valuations, particularly for larger transactions 4 Blue sky multiples firmer, less dependent on profit potential 4 Publics’ capital allocation is driven by stock price

Chart 10 AutoNation Stock Price July 2015 to February 2016 Source: Yahoo Finance

New Entrants Continue to Seek Large Acquisitions2015 was a remarkable year for new entrants to auto retail. The five most active new buyers acquired an incredible 165 franchises, three times more than the six public companies. These new players have the deep pockets and long term investment horizon to continue to make major acquisitions in 2016 and beyond.

“I’d be very surprised if five years from now we aren’t a whole lot bigger.”

Warren Buffet on CNBC speaking about Berkshire Hathaway Automotive (Mar 2015)

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"Conditions in the U.S. are as good as they get. I've never seen a period where I can't see a cloud on the horizon. "- Mike Jackson, CEO of AutoNation (Jul 2015)

"You'll hear a lot of happy talk from everybody else in the industry, [But] I'm saying we're in a new chapter here." - Mike Jackson, CEO of AutoNation (Jan 2016)

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“Conditions in the U.S. are as good as they get. I’ve never seen a period where I can’t see a cloud on the horizon. “Mike Jackson, CEO of AutoNation (Jul 22, 2015)

“You’ll hear a lot of happy talk from everybody else in the industry, [But] I’m saying we’re in a new chapter here.”Mike Jackson, CEO of AutoNation (Jan 6, 2016)


In addition to those who successfully closed on transactions in 2015, Kerrigan Advisors believes several new players will come on the scene in 2016. Specifically, our firm is aware of a number of experienced dealers who have partnered with private capital sources to make sizable acquisitions. This fresh well of capital will increase demand for platform acquisitions and could serve as a significant counter weight to the challenges associated with slower industry growth.

10.0%

13.3%

18.2%

Top Luxury Franchise ROI Top Non-LuxuryImport Franchise ROI

Domestic Franchise ROI

Return on Investment (“ROI”) Drives Valuation Today’s buyers are determining their transaction pricing based on an expected ROI. In most cases, this means considering the full enterprise value of an acquisition, including blue sky, working capital, fixed assets and real estate to determine the free cash flow as a percentage of the total investment. These buyers are also factoring in their cost of capital and are highly sensitive to any changes in borrowing costs or terms.

As can be seen in Chart 11, buyers who are focused on ROI will be more challenged in their efforts to acquire luxury franchises, many of which have been trading at very high multiples and provide a lower return relative to price. The new entrants will not make investments that do not make economic sense in their financial models. Consistent with this point, the new entrants have acquired very few luxury franchises to date.

This situation poses an interesting challenge for sellers of large luxury platforms. Only very deep pocketed buyers can afford these acquisitions, and yet, the luxury pricing is a mismatch with many buyers return on investment requirements. That said, existing private groups are still willing and able to pay steep premiums for luxury dealerships that are both prestigious and considered easier to operate.

Blue Sky Top Luxury Multiples = 9.0x (Based on High Blue Sky Multiple of Lexus, BMW, and Mercedes) Top Import Multiples = 6.5x (Based on High Blue Sky Multiple of Toyota, and Honda) Domestic Multiple = 4.5x (Based on Average Blue Sky Multiple of Ford and Chevy)

Chart 11 Expected Return on Franchise Investment Source: Kerrigan Advisors Analysis


Buyers will also be less willing to price transactions based on earnings upside. In a slow/no growth market, performance improvements are much harder to achieve and buyers will be less willing to pay sellers for underperformance. Increasingly, transaction pricing will be based solely on current earnings with less attention paid to previous success or future potential.

“Go back to 2000, the last time we had records, if you look at the next five years, industry sales were very good. However, the quality of the earnings [at that time] deteriorated

dramatically as the industry really couldn’t manage flat sales.”

Mike Jackson, CEO AutoNation (AN) - Jan. 28, 2016

Blue Sky Values are Firmer, Less Dependent on Profit PotentialBetween 2009 and 2013, auto retail sales grew at an average rate of 10.6%. This rising tide had the effect of lifting dealerships into profitable growth mode. However, as sales growth slows to a standstill (see Chart 12), earnings are expected to decline as margins come under pressure. In this environment, blue sky values will vary more dramatically from dealership to dealership.

Chart 12 Total U.S. Light Vehicle Sales in Millions and YoY GrowthSource: Kerrigan Advisors Analysis and Automotive News

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0.02.04.06.08.0

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2010 2011 2012 2013 2014 2015 2016E 2017E

TOTAL U.S. LIGHT VEHICLE YoY Growth


Publics’ Capital Allocation is Driven by Stock PriceThe publics’ stock prices plummeted an incredible 29% between January 1, 2016 and February 26, 2016 (see Chart 13 on the following page). This decline resulted in a significant decline in their valuation metrics (see Chart 14 on the following page). Generally, the publics make acquisitions which are accretive to earnings. In order for an acquisition to be accretive to earnings, the buyer’s valuation multiples must by higher than the seller’s valuation multiples.

The collective multiples for all of the publics were at all-time highs from 2014 through most of 2015. Given this, it is not surprising that public acquisition activity reached historic levels last year - most deals were very accretive to earnings. However, with their dramatic decline in market capitalization, the publics will find it more difficult to make accretive acquisitions.

Until stock prices rise, Kerrigan Advisors believes public capital will increasingly be allocated toward stock buybacks, as noted in the publics’ 4th quarter earnings calls. From the public CEOs’ perspective, an investment in their own stores in the form of a stock buy/back is much less risky and a lot less work than acquiring and integrating a new dealership or dealership group. If both opportunities are priced the same, the stock buyback decision is the obvious choice.

Craig T. MonaghanPresident, CEO & DirectorAsbury Automotive Group (ABG) - Feb. 4, 2016 “With our stock trading where it is today, buying our stores via share repurchase becomes a pretty attractive option.”

Mike JacksonCEOAutoNation (AN) - Jan. 28, 2016 “There is a competition between the return of buying our own stock and what we can buy in the marketplace.”

John RickelCFOGroup 1 Automotive (GPI) - Feb 11, 2016 “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.”

Roger PenskeCEOPenske Automotive Group’s (PAG) – Feb. 11, 2016 “Based on the current stock price, I think we’ve got to look at buyback versus acquisition, what gives the shareholder the best return.”

Heath R. ByrdCFO & Executive Vice PresidentSonic Automotive (SAH) – Feb 23, 2016 “We were trading at 3.2 times our store level EBIT. And so it becomes an obvious decision on what you do with your money as it relates to spending 8 to 10 times EBIT to acquire.”

THE BLUE SKY REPORT™ |

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Jan 15 Apr 15 Jul 15 Oct 15 Jan 16SPX Auto Dealership Composite

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Chart 13 S&P 500 vs. Auto Dealership Stock Composite Indices Source: Kerrigan Advisors Analysis and Yahoo Finance

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Chart 14Public Valuation MetricsSource: Kerrigan Advisors Analysis and Yahoo FinanceTEV = Total Enterprise Value

Note: Kerrigan Advisors believes the public’s valuation metrics are an important indicator for private dealership valuation trends. The six public dealership groups are “marked to market” every business day by thousands of investors who buy and sell their stock. The efficiency of the public stock exchanges, relative to the private dealership buy/sell market, informs franchise valuation trends and should be closely watched.


KERRIGAN ADVISORS BLUE SKY CHARTSKerrigan Advisors Blue Sky Charts lay out the high, average and low blue sky multiples for each franchise in the luxury and non-luxury segments. Most dealerships are valued based upon their assets plus blue sky. Kerrigan Advisors’ blue sky multiples can be applied to trailing twelve month adjusted pre-tax dealership earnings to estimate blue sky value.

The Kerrigan Advisors’ blue sky multiples are based on our view of franchise values in the current buy/sell market. These multiples should be considered guide posts to estimate a dealership’s blue sky value; however, each dealership has its own unique valuation drivers and significant analysis should be done to determine the market clearing price for blue sky.

The high, average and low multiples reflect the variability in dealership values. In our experience, there are four key factors that drive where a franchise will sell within the range: (i) earnings growth expectations; (ii) buyer demand; (iii) real estate, and (iv) market preference. The combination of these four factors plays a major role in the blue sky multiple a buyer is ultimately willing to pay.

Higher Growth = Higher Multiple: Underperforming dealerships provide an opportunity for higher earnings growth. A dealership that is underperforming, meaning its profitability and/or sales are below market expectations, often commands a higher blue sky multiple because the buyer believes he/she can grow profits at an above-average rate by reducing expenses, increasing gross profit or growing sales. Also, dealerships in high growth markets have higher earnings growth expectations. By way of example, Texas, Arizona and Florida are high growth markets where dealerships often command premium multiples. Lower Growth = Lower Multiple: Over-performing dealerships can experience below average earnings growth post-sale. Ironically, a dealership that is over-performing, meaning its profitability and/or sales are above market expectations, often commands a lower blue sky multiple. Also, dealerships in slow growth markets, such as many smaller Midwestern markets, can expect slower earnings growth.

Higher Demand = Higher Multiple: There are significantly more buyers seeking acquisitions in big cities than there are sellers willing to part with their highly valuable, metro stores. High buyer demand, with limited seller supply, drives up price (Economics 101). Lower Demand = Lower Multiples: Less demand means less competition and lower blue sky multiples. As an example, there are fewer buyers seeking dealerships in smaller/rural markets, resulting in lower multiples.

Factor One: Earnings Growth Expectations

Factor Two: Buyer Demand


Factor Three: Real Estate

Image Compliant Facilities & Low Rent = Higher Multiple: Image compliant dealerships with low rent command higher multiples. These dealerships are highly attractive to buyers because they require no additional investment and they have an attractive rent factor, thus low fixed expenses and less risk. Note: In 2015, the average dealership according to NADA had a rent factor of 7.4% of gross profit. In general, if a dealership is image compliant and its rent to gross profit is below 7.5%, then it is considered to have low rent. Many buyers consider a rent to gross profit margin above 10% high.Real Estate Investment Required and/or High Rent = Lower Multiple: Dealerships that require major real estate investments or have high rent command lower multiples. Most buyers are not looking for real estate development projects. When a dealership requires a significant real estate investment, both known and unknown costs are created. These costs result in increased future rent, which could reduce future earnings. As such, buyers often price non-image compliant franchises or franchises with high rent at lower multiples to take into account the risks to earnings.

Highly Suitable Franchise for a Particular Market = Higher Multiple: Franchises that are highly suitable for a particular market receive higher multiples. For example, a domestic franchise located in a truck market, such as Colorado, is more valuable than the average domestic franchise in the U.S., and thus will likely command a higher multiple. This is due to the fact that unit sales volume and dealership earnings in those markets are expected to be far above the average domestic franchise.Unsuitable Franchise for a Particular Market = Lower Multiple: Franchises that are unsuitable for a particular market receive lower multiples. For example, a luxury franchise in a small city with fewer high-income wage earners will be much less valuable than the average luxury franchise located in a major metro.

Factor Four: Market Preference

In each case, these factors coalesce to push dealership multiples up or down. Sometimes they can counter-balance one another.


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Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015

Luxury

Chart 15Kerrigan 2015 Blue Sky Multiples – Non-Luxury Average Source: Kerrigan Advisors Analysis

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Non Luxury

Chart 16 Kerrigan 2015 Blue Sky Multiples – Luxury Average Source: Kerrigan Advisors Analysis

Kerrigan Advisors shifted its blue sky multiples throughout 2015, as can be seen in Charts 15 and 16.


For the first quarter of 2016, Kerrigan Advisors’ blue sky multiples have minimal changes. Our view is that multiples are at peak levels and are unlikely to rise significantly above current levels. That said, certain franchises do warrant adjustments or initiation of coverage.

One of those franchises is Subaru. Kerrigan Advisors has increased Subaru’s multiple on the high-end from 5.5 to 6 and on the low-end from 4 to 4.5. This shift is a reflection of the brands continued stellar performance (NOTE: The multiple increased in the first quarter of 2015 as well). Subaru once again lead the non-luxury segment in sales and market share growth and increased sales per franchise by over 200 units in just two years, leading the segment. The brand is in very high demand by buyers. In certain markets, such as Seattle, Subaru is the top selling import franchise, surpassing both Toyota and Honda.

After many requests, Kerrigan Advisors is also initiating coverage of Buick/GMC. Buick/GMC’s blue sky multiple is highly dependent upon the market in which the franchise is located and the proximity of competing franchises. Buick/GMC’s value is also impacted by the franchises with which it is dualed. For instance, a Chevrolet/Buick/GMC dealership will command a higher multiple than a stand-alone Buick franchise. With over 2,000 Buick and over 1,700 GMC franchises, sales per franchise is low and profitability is, thus, variable. That being said, General Motors, under the stewardship of Mary Barra, is well positioned for growth and both product lines are considered strong. Buick/GMC’s multiple is being initiated at a 3.0x-4.0x.

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Chart 17Kerrigan Advisors Blue Sky Chart and Analysis: Non-Luxury Source: Kerrigan Advisors Analysis and Automotive News

Kerrigan Advisors Blue Sky Chart and Analysis: Non-Luxury

Franchise Buyer Demand Market Share Change FY 2015 vs FY 2014

Change in Sales FY 2015 vs FY 2014

Sales Per Franchise

Average Dealership Profitability Moody's Credit Rating

High -1% +5% 1,698 Consistently High Aa3

High -3% +3% 1,350 Consistently High A1

High +7% +13% 932 Variable NA

Increasing -1% +5% 703 Variable Ba1

Increasing -0% +5% 771 Variable Baa3

Average +2% +7% 932 Variable B1

Average +1% +7% 401 Variable Ba1

Average +1% +6% 1,262 Variable A3

Average -1% +5% 919 Variable Baa1

Average +2% +8% 813 Variable Baa1

Low -10% -5% 537 Consistently Low A2

Low -1% +4% 499 Consistently Low NA

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Toyota Honda Subaru Chevy Ford CJDR Buick/GMC Nissan Hyundai Kia VW MazdaHigh 6.5 6.5 6.0 5.0 5.0 5.0 4.0 4.0 4.0 4.0 3.0 3.0Average 5.8 5.8 5.3 4.5 4.5 4.5 3.5 3.5 3.5 3.5 2.5 2.5Low 5.0 5.0 4.5 4.0 4.0 4.0 3.0 3.0 3.0 3.0 2.0 2.0

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Chart 18Kerrigan Advisors Blue Sky Chart and Analysis: Luxury Source: Kerrigan Advisors Analysis and Automotive News

Kerrigan Advisors Blue Sky Chart and Analysis: Luxury Kerrigan Advisors Blue Sky Chart and Analysis: Non-Luxury

Franchise Buyer Demand Market Share Change FY 2015 vs FY 2014

Change in Sales FY 2015 vs FY 2014

Sales Per Franchise

Average Dealership Profitability

Moody's Credit Rating

High 5% +11% 1,466 Consistently High Aa3



High +5% +11% 714 Consistently High A2

High +4% +10% 274 Consistently High A2

High (LR) +30% LR -13% Jag

+37% LR -8% Jag

423 LR 88 Jag

Consistently High (LR) Ba2

Low -0% +6% 649 Consistently Low A1

Low +8% +14% 645 Consistently Low A3

Low -3% +3% 189 Consistently Low Ba1

Low +18% +24% 237 Consistently Low Baa2

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In closing, we hope you find this Kerrigan Quarterly informative. If you are a buyer in today’s market, Kerrigan Advisors welcomes the opportunity to learn of your acquisition criteria and include you in our proprietary Buyer Database. If you are seller, we look forward to having a confidential conversation with you about your dealership’s value and potentially serving you as our client.

At Kerrigan Advisors, we run a professional, discrete and competitive dealership sale process to determine the highest market-clearing price for our clients’ franchises. We manage our client’s sale from beginning to success. In our view, dealerships and dealership groups are far too valuable to be sold any other way.

We hope to see you at one of our upcoming speaking events or at NADA in Las Vegas. Please contact Marie Brashears, Kerrigan Advisors’ Executive Coordinator, to schedule a confidential in-person meeting or telephone conversation. Marie can be reached at (949) 202-2200 or [email protected]

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Lexus BMW Mercedes Audi Porsche Land Rover -Jaguar* Acura Infiniti Cadillac Volvo

High 9.0 9.0 9.0 8.0 8.0 7.5 3.5 3.5 3.5 3.5Average 8.00 8.00 8.00 7.00 7.00 5.75 3.25 3.25 3.25 3.3Low 7.0 7.0 7.0 6.0 6.0 4.0 3.0 3.0 3.0 3.0

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Dealerships are Far Too Valueable to be Sold Any Other Way

Kerrigan Advisors’ recently completed transactions representing$400 million in client proceeds in its inaugural year of business.

“Kerrigan Advisors was instrumental in positioning our dealership group for maximum return on our investment. We would not have received the offer that we did without their valuable insight into the market, and the correct positioning of our dealership group. Having them as my partner gave me the confidence to move forward with the sale.”

Patti Swope, former owner of Sam Swope Auto Group

“I heartily recommend Kerrigan Advisors if you are considering a sale of your dealership, particularly if you expect and appreciate first rate professional advice and excellent value, with a high degree of confidentiality.”

David Morris, former owner of Mercedes Benz of Edmonton West

“Working with Kerrigan Advisors got us top dollar for our dealerships and property. Their expertise in handling the negotiations of the transaction was critical to us maximizing our deal.”

Bob Lanphere, former owner of Renton Honda and Kia

“Kerrigan Advisors did an exceptional job selling our dealership. Erin Kerrigan led a highly effective and confidential sale process that resulted in an outstanding outcome. I highly recommend her for her integrity, client commitment and professionalism. In my opinion, Kerrigan Advisors is the best representative a dealer could have!”

Johnny Harrison, former owner of Lexus of Glendale


KERRIGAN ADVISORS UPCOMING SPEAKING EVENTS

JD Power Summit before NADA Wynn Las VegasMarch 31, 2016

Texas Auto Dealers Association 100th Anniversary Annual ConferenceJW Marriott, Austin TX

April 17-18, 2016

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Kerrigan Advisors19700 Fairchild, Suite 150Irvine, CA 92612949-202-2200www.kerriganadvisors.com

We Serve Sellers. We Know Buyers.

Exceptional Sell-Side Representation for Auto DealersExceptional Sell-Side Representation for Auto Dealers

Erin Kerrigan is Managing Director of Kerrigan Advisors, which she founded in 2014. Prior to founding Kerrigan Advisors, Ms. Kerrigan headed Presidio Automotive. During her time at Presidio, the firm represented dealer clients in numerous multi-million dollar transactions. Prior to Presidio, she was a Senior Vice President at AutoStar, a subsidiary of iStar Financial (NYSE:SFI), where she led transaction origination. Early in her career, she was dealer operator of her family’s dealership, which she sold in 2006. Ms. Kerrigan is a recognized industry expert on dealership valuation, real estate and buy/sells, and is a frequent speaker at leading auto retail events and conferences, including NADA (#1 speaker in 2012), AICPA, NADC and Driving Sales’ President’s Club. She has also led webinars for NADA and Automotive News on the topic of buy/sells and she writes a monthly column and blog for Dealer Magazine. Ms. Kerrigan earned her undergraduate degree from Northwestern University and her Masters in Business Administration from The UCLA Anderson School of Management.

Contact Erin Kerrigan: 949-439-6768 / [email protected]

Kerrigan Advisors is focused on serving dealership sellers. We customize our sale process to maximize our client’s transaction proceeds. The firm’s leadership has advised on over $2 billion worth of transactions in auto retail, private equity and investment banking. We leverage our proprietary Buyer Database and extensive industry relationships to identify the right buyer for our client’s business. Our sale process is highly professional, actively managed, competitive, and – most important – discrete.

Ryan Kerrigan is Managing Director of Kerrigan Advisors. Mr. Kerrigan oversees strategy, finance and modeling for Kerrigan Advisors and lead the firm’s private equity and family office advisory practice. He has extensive experience in private equity investing, auto retail, management consulting and executive management. In addition to his auto sector experience, Mr. Kerrigan has served as CEO of several companies during his career, including Elevate Property Services and Alta Environmental, companies he currently owns. During his career, he also served as Managing Director at Serent Capital, a $250mm private equity fund investing in middle market companies and as General Manager of his family’s auto dealership. Early in his career, Mr. Kerrigan spent four years as a management consultant at McKinsey & Company, where he advised Fortune 500 companies on growth strategies, organizational issues, pricing and business valuation. Ryan has an MBA from Stanford University’s Graduate School of Business and an MSFS from Georgetown University’s School of Foreign Service. He graduated summa cum laude from the University of Notre Dame with a BBA in Finance.

Contact Ryan Kerrigan: 949-728-8849 / [email protected]

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