It was great to talk to so many dealers at our booth at the NADA Show this year. The question I kept getting from buyers, large and small, was, “How are you valuing dealerships?”
We had some great conversations around this topic. I found that my short-version answer kept coming down to three things:
Performance in 2023
How did your dealership’s 2023 “results” compare to the years 2020-2022? If the 2023 results were similar to 2020-2022, it would provide validity to the pandemic-era results. If there was a decline in the 2023 results, then the 2020-2022 numbers will need to be discounted to some degree. If 2023 dropped off the map, or returned to 2019 numbers, then pandemic performance must be set aside. The buyers will certainly see it that way when they are making offers.
Proforma
Put aside the historical facts and tell me what your proforma looks like. (The conservative one, not the one you wish it was.)
The top end of what one is willing to pay in goodwill for a dealership should always be based on one’s proforma for the first 1-3 years of ownership. It doesn’t matter what the value is that you’re presented with, nor necessarily the results from the previous years. What matters is what you believe you can achieve by owning the dealership. If you don’t believe you can do better than the seller has done over the previous 3-5 years, almost regardless of price, you shouldn’t buy it.
Disregard Multiples
Generally, disregard the multiples when determining value.
Multiples are useful as a comparative tool but that’s about it. Multiples help provide context for brands in the larger automotive market. But multiples are not very helpful in determining value. Because by themselves they do not account for market, locations within a market, single point or not-I could go on with this exercise for a while.
Value is a function of a myriad of factors – your existing footprint, the strength of your bench, the cost of capital, ROI “requirements,” CSI, SSI, and on and on.
As you know from your experience, there is no cookie-cutter mechanism for determining value. And to complicate matters further, each buyer may see the value differently depending on what they bring to the table in terms of operations, and what specific features make a store attractive to them for personal or business-related reasons.
A seller always needs to understand how the buyer is going to look at the business. Ultimately the market will decide what a dealership is worth. But by doing the appropriate digging and asking the right questions, we can get very close to predicting what the market value will be.
If you would like to find out what the value of your dealership would be if you put it on the market today, please reach out. All conversations are confidential with no obligation.
Jeff Rochwarger
Senior Vice President - Southeast
Jeff@nationalbusinessbrokers.com
Direct Line: 407-754-6202
