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October 18th-20th, 2015The Bellagio Hotel, Las Vegas
In Buffett’s Crosshairs:Revolutionizing Automotive Retailing
Brad Mewes, PrincipalSupplementFinancial Insight for the Automotive Aftermarket
Warren Loves Cars
The Consolidation Curve
Inorganic Growth
What Not to Do
Pricing Trends and Valuation Methods
WARREN LOVES CARSThe Current State of the Industry and WhyConsolidation Will Likely Continue
Welcome to the car business, WarrenMike Jackson, CEO Auto Nation
Why Invest in Auto Retail
Source: YCharts
Why Invest in Auto Retail
Source: NADA, The Haig Report, 2015
Why Invest in Auto Retail
Source: The Haig Report, 2015
What is Private Equity???
What does Warren see inAutomotive Retail?
“In business, I look for economiccastles protected by unbreachable
‘moats’”
--Warren Buffett, BerkshireHathaway
“There are about 17,000dealerships in the country, andownership transfers alwaysrequire approval by the relevantauto manufacturer. Berkshire's jobis to perform in a manner that willcause manufacturers to welcomefurther purchases by us.”
--Warren Buffett, BerkshireHathaway
“I fully expect we’ll buy a lot moredealerships over time.
We will hear, I predict, fromhundreds of dealerships in thenext year.”
--Warren Buffett, BerkshireHathaway
Did Buffett miscalculate?
CONSOLIDATION CURVEThe big get bigger. How industry lifecycles impactcompetition and consolidation.
"In the future -- I don'tknow how far in thefuture -- the smallergroups will be similar toours: a billion dollars insales.”
--Rick Case, Rick CaseAutomotive Group
"There's a hugeopportunity forconsolidation in autodealerships…
How big is big really?”
--Larry Van Tuyl,Berkshire Automotive
Stage 1:Fragmentation
Stage 2:Acquisitions
Stage 3:Expansion
Stage 4:Maturity
Market Share 10% - 30% 15% - 45% 35% - 70% 70% - 90%
GrowthOne-Off
AcquisitionsPlatform
AcquisitionsMega Deals &Greenfields
Defense &Maintenance
StrategyBuild
Revenues andBrand
M&A andIntegration
Profitability &Scale
ManageRegulatory
Environment
Stages of Consolidation
Economies of Scale:
The reduction in average and marginal costs arising from anincrease in size of an operating unit.
Source: Roland Berger
InvestmentInvestment
CompetitiveAdvantage
CompetitiveAdvantage
RetainedEarningsRetainedEarnings
Acquisitions,Scale,
Barriers toEntry
Acquisitions,Scale,
Barriers toEntry
BusinessAttracts
AdditionalCapital
BusinessAttracts
AdditionalCapital
The Virtuous Cycleof
Investment
Stand Pat: Operational Excellence
Grow: Develop Scale
Sell: Realize Value Now
Options
INORGANIC GROWTHBuild and Execute an Inorganic Growth Strategy
Source: The Banks Report, Author’s Calculations
0
5
10
15
20
25
30
35
40
45
50
Deal
ersh
ips
Acqu
ired
Most Acquisitive Dealer Groups2013 to June 2015
(Excluding Berkshire)
Source: The Banks Report, Author’s Calculations
0
5
10
15
20
25
Num
ber o
f Dea
lers
hips
Acq
uire
dMost Acquisitive Private Dealer Groups
Since 2013
Start with the end in mind
Build a team; both internally andexternally
A proactive acquisition strategy
Develop non-auction deal flow
Evaluate your alternatives
Five Inorganic Growth Success Factors
Start with the End in Mind
Build a Team,
Internally and Externally
Proactive
Acquisition Strategy
Non-AuctionDeal Flow
Evaluate Your
Investment Alternatives
WHAT NOT TO DOIdentify and avoid common buy side pitfalls
Over-optimistic Projections
Lack of Focus
It Really Is All About the People
Post Deal Integration
Ignore the Advisors
Five Common Acquisition Mistakes
Over-optimistic Projections
Lack of Focus
It Really Is All About the People
Post Deal Integration
Ignore the Advisors
Five Common Acquisition Mistakes
Over-optimistic Projections
Lack of Focus
It Really Is All About the People
Post Deal Integration
Ignore the Advisors
Five Common Acquisition Mistakes
Over-optimistic Projections
Worst Case Scenarios Cash Flow vs Profit Working Capital Needs Under Capitalized / Insufficient
Funding Deals take on a life of their own
Five Common Acquisition Mistakes
Over-optimistic Projections
Lack of Focus
It Really Is All About the People
Post Deal Integration
Ignore the Advisors
Five Common Acquisition Mistakes
Lack of Focus
Strategic Drift Diligent Due Diligence Existing Team Bandwidth
Five Common Acquisition Mistakes
Overworked Team`
Over-optimistic Projections
Lack of Focus
It Really Is All About the People
Post Deal Integration
Ignore the Advisors
Five Common Acquisition Mistakes
It Really Is All About the People
Ego Culture New Team Integration Who’s Responsible for What?
Five Common Acquisition Mistakes
Overworked Team`
Over-optimistic Projections
Lack of Focus
It Really Is All About the People
Post Deal Integration
Ignore the Advisors
Five Common Acquisition Mistakes
Post Deal Integration
Cost Synergies Cash Needs OEM Integration IT, HR, Accounting, Shared
Services, etc.
Five Common Acquisition Mistakes
Overworked Team`
Over-optimistic Projections
Lack of Focus
It Really Is All About the People
Post Deal Integration
Ignore the Advisors
Five Common Acquisition Mistakes
Over-optimistic Projections
Lack of Focus
It Really Is All About the People
Post Deal Integration
Ignore the Advisors
Five Common Acquisition Mistakes
WHAT IS IT WORTH?Dealer Pricing Trends and Valuation Methods
Tangible Net Assets + Blue Sky
DCF, IRR & Hurdle Rates
Multiples & Comps
Strategic vs Financial
Control & Liquidity Premiums
A Primer on Valuation
Brand
Location / Market
Management Team
Facility
Operational Excellence
Non Financial Premiums
Recent Comps
Source: The Haig Report, 2015
October 18th-20th, 2015The Bellagio Hotel, Las Vegas
Thank You!Please take a moment torate my presentation inthe DSES mobile app!
Brad MewesPrincipal, SupplementFinancial Insight for the Automotive [email protected]
