The Valuation of Dealerships
Many items are purchased from dealerships. We will provide the background and history of dealerships, walk through the profit centers of dealerships, and perform a high-level mock valuation of a dealership.
Brown v. Brown
In this Mississippi divorce case, the appellate court en banc reversed in part and remanded in part, asking the trial court to determine whether certain items were marital property and determine the values for certain marital properties so a proper distribution of marital property can be made. Included was a used-car business that was remanded for a value to be determined. Several judges dissented primarily because the marital estate in total was not very material and they believed the appellate court could have made adjustments without remanding.
Mississippi Appeals Court En Banc Remands for Valuation of a Small Used-Car Business With Dissents From Several Judges
In this Mississippi divorce case, the appellate court en banc reversed in part and remanded in part, asking the trial court to determine whether certain items were marital property and determine the values for certain marital properties so a proper distribution of marital property can be made. Included was a used-car business that was remanded for a value to be determined. Several judges dissented primarily because the marital estate in total was not very material and they believed the appellate court could have made adjustments without remanding.
BV News and Trends October 2022
A monthly roundup of key developments of interest to business valuation experts.
Auto Dealerships are Running Hot: Key Valuation Metrics Unique to Auto Deal
Providing a valuation of a business can be a complex process as there are a variety of intricacies that help determine the value. Automobile dealership valuations are a bit more complex because they have unique characteristics that set them apart from other businesses and industries. They involve a deep understanding of the automotive retail industry which includes items such as factory financial statements, franchise multiples, and operational benchmarks of the dealership, to name a few.
Car dealer blue-sky values remain at record levels, per Haig report
“Blue sky” values are 6% higher than at the end of 2021, and they are at the same level as they were at the end of the first quarter of 2022, according to the Q2 2022 Haig Report.
Court tweaks blue-sky method in valuing a car dealer
A Tennessee appellate court recently considered the Chancery Court’s determination of the value of an oppressed minority shareholder’s interest in an “ultra-high-end” car dealership.
Buckley v. Carlock
The Tennessee appellate court affirmed the Chancery Court’s determination of the value of an oppressed minority shareholder’s interest in an “ultra-high-end” car dealership. The valuation of an expert utilized the “blue sky method,” a rule of thumb method, to value the dealership and ultimately the minority interest. The Chancery Court conducted a hearing on which it heard valuation expert testimony. The appellate court affirmed the Chancery Court’s valuation and its methodology since it was generally accepted by the financial community.
Appellate Court Affirms Use of the ‘Blue Sky Method,’ a Rule of Thumb, to Value a Minority Interest in an Oppression Case
The Tennessee appellate court affirmed the Chancery Court’s determination of the value of an oppressed minority shareholder’s interest in an “ultra-high-end” car dealership. The valuation of an expert utilized the “blue sky method,” a rule of thumb method, to value the dealership and ultimately the minority interest. The Chancery Court conducted a hearing on which it heard valuation expert testimony. The appellate court affirmed the Chancery Court’s valuation and its methodology since it was generally accepted by the financial community.
Multiples Used to Estimate Automotive Dealerships Market Value
Practitioners use goodwill multiples for valuing automobile dealerships. In this paper, the valuation accuracy of five goodwill multiples and seven more traditional multiples that can be used for estimating the market value of the equity of car dealerships is assessed during the 2010–2016 period. Our results support that the goodwill multiples provide the smallest estimation errors in valuing the market value of automobile dealerships.
What’s an auto dealership worth? Explore the four primary value drivers
From a business valuation perspective, automobile dealerships are different from other commercial businesses. In fact, the unique nature of the car-buying experience is only one of many unique aspects that make it tough for owners to answer the common question, “what is my car dealership worth?” To provide a road map for owners who may be considering selling their dealership and for the business appraisers tasked with valuing them, BVR asked experts to identify the top factors that impact the value of new car dealerships.
Court refuses to take stand on minority discount in buyback of shares
The parties retained a sole appraiser, whom they both knew from past appraisals he had done of the company. Prior to formally engaging the appraiser, in a court hearing, both sides broached the issue of whether it was appropriate to apply a minority discount in valuing the plaintiff's shares. The court declined to weigh in on the subject, but told the parties the minority discount issue should form “part of the discussion” they needed to have over the valuation methodology.