Public Companies’ U.S. Acquisitions Drop 55 Percent
SAN FRANCISCO — The Presidio Group LLC, through its subsidiary Presidio Merchant Partners LLC, today released its Automotive Retail M&A Market Report for the first half of 2012.
Some highlights of Presidio’s report include:
- After completing $229 million in U.S. dealership acquisitions in the first half of 2011, public companies spent just $103 million to acquire U.S. dealerships in the first six months of 2012, a 55 percent decline (source: corporate SEC filings and Capital IQ). Acquisition activity by private dealers also appears to have slowed.
- The industry views the drop in activity as a fundamental disagreement on price. Buyers see economic and political uncertainty and better uses for their capital, while sellers are experiencing record profits and anticipating continued growth.
- Industry multiples have begun to contract as the potential for earnings growth slows. Auto group investors valued public retailers at 12.2x Normalized Earnings per Share in June of 2012, down from 18.2x in June 2011, a 33 percent decline (source: Capital IQ).
- As their multiples fall, public companies are less likely to pursue acquisitions in the U.S. Over the past decade 28 percent of the cash flow from public retailers was spent on U.S. acquisitions. Over the past six months, just nine percent went towards U.S. acquisitions while 51 percent was used to buy back company stock (source: corporate SEC filings).
- Public retailers are actually shrinking in size, with the total number of dealerships owned by public companies falling from a peak of 884 in 2004 to 744 in 2011 (source: Automotive News).
- Multiples on private dealerships appear to also have fallen for many franchises, as buyers are more concerned with risk than earlier in 2012, and are finding other uses for capital.
- Despite the decline in acquisitions, trends remain favorable for increasing auto sales due to aging vehicles and easy credit for buyers, with most experts predicting auto sales in 2012 increasing 9-13 percent over 2011.
- Private dealerships appear to be on their way to recording all-time high levels of profitability, according to data provided by NADA, and the value of large dealership groups has increased by an estimated 23 percent from 2006.
- Dealers are aging and many will want to sell their companies in the next few years. Since dealership sales activity has been below normal levels since the beginning of the recession, there is “pent up demand to sell” that may lead to higher transaction volumes in the future.
“We are surprised at the decline but in light of political and economic risks we understand why buyers are being a little hesitant,” said Alan Haig, Managing Director and Head of Presidio’s automotive retail services group. “But we do see transaction volume picking up in the foreseeable future as the outlook for auto sales is generally good and the ownership base for dealers is continuing to age with many dealers at or above retirement age. We think the next few years will be active ones.”
The full report is available here.
The Presidio Group’s automotive practice is the premier full service advisor for sellers of high value dealerships and dealership groups. The practice focuses on dealership transactions valued between $20 million and $300 million. Presidio’s professionals have been involved in more than 150 auto dealer related purchases, sales, and capital raises, totaling more than $4 billion. Its Automotive Retail M&A Market Report is a leading source of information on auto retailers and acquisition activity.
About The Presidio Group LLC. Presidio is a personal and corporate financial services firm, and one of the nation’s leading independent wealth advisors with client assets of nearly $4 billion. Through its interconnected investment banking, private equity, wealth advisory, and family enterprise strategies units, Presidio is uniquely capable of addressing the lifecycle challenges of wealth – from its creation, through its retention and growth, to its transfer to successive generations. The firm’s principals have extensive experience running businesses, creating wealth of their own and understanding and managing risk. Presidio and its subsidiaries currently serve clients throughout the United States. Presidio Merchant Partners LLC is a member of FINRA and SIPC. For more information, visit www.thepresidiogroupllc.com.