Pub. 10 2020 Issue 1

21 may be willing to pay more for a strategic move to attain brand diversi cation. Any combination of these reasons will truly be determining factors in establishing the potential value of a dealership. Quantitative Analysis I previously mentioned the term “normalized earnings,” but what exactly is normalization, and why is it important? Normalization adjustments are made to the earnings in order to provide a representation of a reasonably, well-run public company equivalent. ese adjustments allow for an even-level playing eld for comparing the earnings of di erent businesses. is is a crucial step in the process, as the earnings in which a multiple is applied against can greatly a ect the outcome. Certain adjustments may include but are not limited to rent, owners’ salaries and intercompany transactions. Qualitative Analysis Although multiples are a great quantitative valuation tool, it is crucial that the qualitative factors are assessed as well. Take, for instance, a dealership that has been incurring losses, year over year; the application of an earnings multiple to attain a Goodwill value would be impossible. Does this mean the dealership is worth negative goodwill? Absolutely not. In this scenario, the valuation requires an assessment of many qualitative factors, including, but not limited to, localization, brand, performance and potential, facility condition and reputation. Conclusions Determining the Goodwill value of an automotive dealership is not a simple process, and cannot be ignored during a merger or acquisition. Given the complexities of this process, we believe it strongly requires a certain level of industry- speci c expertise, intuition and a deep understanding of the market conditions to determine the true-to-market value of a dealership. At DSMA, our expertise stems from the fact that we have completed over 190 transactions in which we have acted as the exclusive intermediary. We have also completed over 800 automotive dealership valuations across North America. We never establish a value before thoroughly reviewing all the relevant risks, factors, opportunities and potential buyer pro les. We dedicate a multidisciplinary team to this process because we believe it is important to have the insight of various industry experts to settle on the most probable amount. In summary, appraising a business is not just a science, it’s an art!  Jennifer Rafael Mergers & Acquisitions Market Leader — Chicago, Illinois jennifer.rafael@dsma.com | 312.927.9561 For more information, contact Jennifer Rafael at DSMA, 312.927.9561 or jennifer.rafael@dsma.com. DSMA is a leading Automotive M&A firm with more than $6 billion in dealership sales over the course of the last five years. Jennifer has extensive industry knowledge in manufacture, and captive and banking financing, after having spent 20 years in the automotive industry. Jennifer is now a mergers and acquisitions associate in the Midwest Region. JENNIFER RAFAEL SPARKING OPPORTUNITIES IN ILLINOIS Book a free consultation. DSMA.com 833.719.3889 DSMA has grown to be North America’s Leading automotive M&A firm. Looking to buy an automotive dealership or sell the one you own - we’ll guide you every step of the way. Your local market leader, Jennifer has the experience, expertise and a diverse list of qualified local and global buyers. Contact Jennifer and start your buy/sell journey. JENNIFER RAFAEL jennifer.rafael@dsma.com 312.927.956