Written By: Alysha Webb
Considering selling your dealership or simply wondering what it might be worth? How might you strengthen that value over time? In our recent webinar, “Driving Dealership Value: Preparing for a Sale or Future Growth,” industry experts tackled these questions and more.
During the session, Gabe Robleto, Senior Vice President at Kerrigan Advisors, and Paul Dumm, leader of Rosenfield & Co.’s Business Advisory Services team, discussed how dealership valuations are determined and the practical steps dealers can take to maintain, and even improve, their valuation.
“The value of any business is based on expectations for three things,” Dumm said, “The profitability of that operation, the growth expectation of that operation and the risk of meeting or not meeting those growth and profitability expectations.”
“Most buyers are pricing based on the trailing 12-month financial performance of the business. Not the last three years average, not the last five years average, not 2019.”
When negotiating a dealership price, buyers and sellers must take into consideration not only tangible assets but also the intangible, or Blue Sky, value. This intangible component is often represented or calculated using a Blue Sky multiple.
Kerrigan Advisors’ “The Blue Sky Report” provides quarterly updates on Blue Sky multiples. During the webinar, Gabe Robleto discussed when a franchise multiple should be adjusted and how it should be applied when arriving at a valuation.
“The multiple should be applied to the most recent adjusted earnings,” Robleto explained. Expenses that a buyer will not incur should be removed, while any expenses they will incur that aren’t reflected in the financial statements should be added.
“Most buyers are pricing based on the trailing 12-month financial performance of the business,” he added. “Not the last three years average, not the last five years average, not 2019.”
However, Robleto noted that multiples can fluctuate significantly depending on seven key factors.
“There is more art than science that goes into valuation. At the end of the day, a franchise is only worth what a buyer is willing and able to pay and what a seller is willing and able to accept.”
The key takeaway is that a dealer cannot simply multiply earnings by a published multiple to determine what a buyer will pay. “There is more art than science that goes into valuation,” Robleto said. “At the end of the day, a franchise is only worth what a buyer is willing and able to pay and what a seller is willing and able to accept.”
“Look at strengths and weaknesses and opportunities and threats. Do it regularly because they change over time. For example, a year ago, tariffs weren’t really an issue. A year later, it’s front and center.”
“Those factors all relate back to profitability, growth and risk,” Dumm observed. For example, the facility condition can become a profitability issue if a dealer has to spend money making it image compliant. Meanwhile, location is a function of risk if you’re not in the right market for the brand represented.
What can a dealer do to improve a dealership franchise’s multiple? Rosenfield and Co. recommends that a dealer first and foremost know the dealership’s metrics and track them consistently. This should be an ongoing process, Dumm emphasized, because it takes time to influence profitability and growth.
“So, you need to know those metrics, you need to track those metrics, you need to evaluate those trends and evaluate anomalies in those trends to figure out and to identify what’s happening” and make necessary corrections, Dumm added.
“Also, look at strengths and weaknesses and opportunities and threats,” Dumm advised. “Do it regularly because they change over time. For example, a year ago, tariffs weren’t really an issue. A year later, it’s front and center.”
In all these evaluations, be honest with yourself, Dumm recommended. Make incremental changes to improve your metrics.
“You’re not going to be able necessarily make changes overnight that are going to change a buyer’s perception of your dealership, because they’re going to look at it from a due diligence perspective,” he added.
“Your CPA plays an important role in evaluating weaknesses because a CPA isn’t as buried in day-to-day operations, but knows the dealership business. The CPA helps a dealer look at future expectations."
For major investments such as image compliance, dealers should perform a cost-benefit analysis to understand what it would take to make improvements before going to market. Ask yourself, “Is it worth it, am I going to get bang for my buck?” Dumm suggested. He added that a buyer will pay less for a non-image compliant dealership.
“Also look at your reserves because a buyer will do so during due diligence,” Dumm noted. An appropriate level demonstrates that you are taking care of the business, he added. Just as importantly, “it gives them comfort that they’re getting numbers that are the right numbers or the appropriate numbers as a basis for their evaluation, and it gives you the right numbers to be able to evaluate what your expectations might be,” he said.
“Your CPA plays an important role in evaluating weaknesses because a CPA isn’t as buried in day-to-day operations, but knows the dealership business,” Dumm observed. “The CPA helps a dealer look at future expectations,” he added. They might also catch a weakness before it ends up lowering the value of your dealership.
For example, how well do you know your used vehicle operations? Some dealerships acquired a large amount of used inventory between 2021 and 2023, when new car prices were rising and consumers were turning to used vehicles to save money.
In some cases, these dealerships purchased vehicles at high prices, and when the market moderated, they had to sell at a discount to liquidate inventory due to flooring costs. This scenario can ultimately reduce profitability, Dumm explained, highlighting why it’s important for dealers to evaluate inventory strategies and anticipate market shifts. A CPA could flag the risk before it becomes a significant issue.
Documents need to be readily available, especially if you’re preparing for a sale, Dumm emphasized. “I don’t know how many times we get involved in looking at a dealership for their accounting purposes or valuation purposes and they don’t have signed copies of documents, or they can’t locate them and things like that,” he said.
Documents a potential buyer will want to review include signed copies of sales and service agreements, dealer agreements, leases, debt agreements, and title documents. Make sure these records are stored in a secure location, with duplicate copies off-site and/or backed up in the cloud. “Or in a fireproof box,” Dumm added.
Rosenfield & Co. has seen firsthand the importance of this: the firm worked on a litigation case in which a fire destroyed all of a dealership’s records.
Ultimately, increasing a dealership’s value requires a proactive approach. Tracking key metrics, addressing operational weaknesses, evaluating market trends, and maintaining strong customer relationships all contribute to a higher valuation. Working with trusted advisors ensures that potential risks are identified and opportunities for growth are maximized.
By understanding the factors that influence a dealership’s multiple and taking thoughtful, incremental steps, dealers can not only prepare for a sale but also strengthen the long-term health and profitability of their business. As Dumm and Robleto emphasized, a dealership’s value is determined by what a buyer is willing and able to pay and by what a seller is prepared to deliver, making preparation and strategic insight critical.
Catch the full recording of “Driving Dealership Value: Preparing for a Sale or Future Growth” and download the slide deck below.
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