{"id":182981,"date":"2019-10-29T10:10:24","date_gmt":"2019-10-29T14:10:24","guid":{"rendered":"https:\/\/dsma.com\/what-is-the-real-value-of-your-dealership\/"},"modified":"2019-10-29T10:10:24","modified_gmt":"2019-10-29T14:10:24","slug":"what-is-the-real-value-of-your-dealership","status":"publish","type":"post","link":"https:\/\/dsma.macroblu.com\/fr\/what-is-the-real-value-of-your-dealership\/","title":{"rendered":"What Is The Real Value Of Your Dealership?"},"content":{"rendered":"

INTRODUCTION<\/strong>
\nWhen it comes to appraising automotive dealerships, there are several unique nuances that come into play. Many industry-specific factors and conditions are to be considered, which all contribute to the value of the dealership\u2019s Goodwill. Also commonly referred to as; \u201cBlue Sky\u201d, the Goodwill valuation of a business, is used to establish the value of the intangible assets associated with the business. Intangibles may include items such as; trades names, franchises & brands, customer relationships, etc. On the other hand, we have tangible assets, such as, equipment, vehicle inventories, parts inventories \u2013 assets in which industry standards can be used to establish their value. Tangible assets provide for measurable value during the course of a valuation engagement, but how do we determine the appropriate Goodwill value?<\/p>\n

MULTIPLES<\/strong>
\nWe start with discussing multiples of earnings and their application. While performing a typical business valuation, comparable businesses are commonly used as measurable metrics for determining the value of a subject\u00a0 business. The auto industry is unique in that there is such an abundance of historical transactions, which allow for such comparisons. This has created a heightened awareness of \u201cMultiples of Earnings\u201d valuations within the auto industry, possibly greater than any other industry. On the surface, this ideology may seem as simple as applying a multiple to a normalized representation of the businesses\u2019 earnings to establish a final Goodwill value, but in fact the valuation process is much more complex than that.
\nA proper valuation of a dealership can not be solely based on the simple application of an earnings multiple or any mathematics formula, but rather on what a qualified buyer is ready to pay for the business, given the operational facts and conditions. Certainly, comparable transactions within the industry, help provide a scale of value during the assessment, which in turn also explains why multiples remain as a foundational tool for practicality. However, it would be quite risky to conclude the analysis by simply applying a multiple of earnings to validate a valuation. In fact, a thorough assessment based on meticulously analyzed operational facts and the conditions of the industry environment, is always required in order to truly provide proper validation of the businesses\u2019 market value. Thus, the true value of any dealership is the highest price a potential buyer would be ready to pay, given the outcome of the in-depth analysis.<\/p>\n

BUYERS MOTIVATIONS<\/strong>
\nAs with other investment decisions, typically what potential buyers are looking for is a return on their investment (ROI). The price this buyer is willing to pay is normally determined by their exhaustive analysis of the risk factors and rate of return on their investment. With that said, buyers\u2019 motivations are normally driven by logic, but often times, also driven by emotion. In certain cases, industry buyers may be willing to pay more for a strategic move to attain brand diversification, or emotional reasons, such as a buyer who is looking to acquire a specific brand that is not already part of his portfolio. Any combination of these reasons, will truly be determinant factors in\u00a0 establishing the potential value of a dealership. Moving forward, lets contrast some of the quantitative and qualitative factors involved in determination of a dealerships Goodwill.<\/p>\n

QUANTITATIVE ANALYSIS<\/strong>
\nI had mentioned that typical valuation practices call for applying a multiple to the normalized earnings of the business but what exactly is normalization, and why is it important? Normalization adjustments are made to the earnings of a closely held business in order to provide a representation of a reasonably, well-run public company equivalent. These adjustments allow for an even-level playing field for comparing the earnings of different businesses. This is a crucial step in the process, as the earnings in which a multiple is applied against, can greatly affect the outcome. Although there are many elements and adjustments to take into account, here are a few common areas, requiring normalization:<\/p>\n