Natalia Lazarevic [email protected] Avolio [email protected] Viegas [email protected] Chen [email protected] Rho [email protected] Luk [email protected] Liu [email protected] Saskin [email protected] Aggarwal [email protected]
CONTACT INFORMATION
Team B-ACIIC
AUTO CANADA - ACQ
Please note that none of the authors in this pitch have any long or short positions on ACQ
Since prices bottomed out in mid-June, spot uranium has rebounded % to
One of the largest multi-location dealership groups and the only
publicly traded Canadian automobile dealership, headquartered in
Edmonton it currently services customers across eight provinces
Revenue is derived from four operations, new vehicle sales, used
vehicle sales, financing and insurance, and parts and servicing
Sold approximately 36,000 vehicles and processed over 364,000
service and repair orders
Operates 48 franchised dealerships in eight provinces and has
over 3,600 employees
Represents eight vehicle original equipment manufacturers
(OEMs) and 19 brands with dealerships based primarily in Western Canada
Sources: ACQ Investor Relations
AUTO CANADA Overview
OVERVIEW
AUTO CANADA - COMPANY OVERVIEW
Original
Equipment
Manufacturer
(OEM)
Parts and
Servicing
ACIIC
NUMBER OF DEALERSHIPS AT YEAR ENDEBITDA PROFILE
3.0%
2.4%
1.9%
2.9%
3.4%
4.1%4.2%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
2008 2009 2010 2011 2012 2013 LTM
$0
$10
$20
$30
$40
$50
$60
$70
$80
EBITDA Margin
Consumer
Financing and
Insurance
AUTO CANADA
22 22 2324 25
31
4851-53
2008 2009 2010 2011 2012 2013 Current By May2015
130% increase in
dealerships since 2008
The only publicly trade automotive dealership group in Canada
Sources: ACQ Investor Relations
AUTO CANADA Revenue Breakdown
BUSINESS SEGMENTS
AUTO CANADA - COMPANY OVERVIEW
ACIIC
SAME STORE GROSS PROFIT GROWTH
GEOGRAPHIC BREAKDOWN
2011 2012 2013 LTM
New Vehicles Used Vehicles Parts & Servicing Finance & Insurance
-2.8%
-7.8%
4.1%
13.9%
10.9%
17.5%
8.0%
2008 2009 2010 2011 2012 2013 LTM
Based on dealerships
owned for at least 2 years
ACQ is geographically diversified, and its business founded on four revenue streams
Sources: ACQ Investor Relations
Trading History
AUTO CANADA TRADING HISTORY
ACIIC
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
-
200
400
600
800
1,000
1,200
3/13/2014 5/13/2014 7/13/2014 9/13/2014 11/13/2014 1/13/2015 3/13/2015
Volume
PRICE VOLUME ANALYSIS SUMMARY STATISTICS
Sales surge 12.6%
in September
Appointment of
CFO
Closing of Equity
Financing and
Secondary
Offering
ACQ trading in lockstep with oil in recent months
Share Price ($) 41.6
Shares ($) 24.5 M
Market Cap 960.4
Add: Debt ($) 119.9
Add: Preferred Shares N/A
Add: Minority Interest N/A
Less: Cash ($) 35M
Less: Investments ($) N/A
Enterprise Value 1.6B
52 Week Low 91.72
52 Week High 31.32
Avg Vol 152,368
EV/Revenue
EV/EBITDA 19.9X
P/E 19.5x
P/B 2.46x
P/Sales .47x
Annual EPS 2.3
Quarterly EPS 0.56
Mean Recommendation 2
PEG Ratio 2.3
Capitalization
Trading Multiples
Market Data
Analysts Estimates
Sources: ACQ Investor Relations
Recent Events
OVERVIEW
AUTO CANADA RECENT EVENTS
Bridges Chevrolet Acquisition
in North Battleford
ACIIC
BMW Laval & MINI Laval
Acquisition in Laval
Toronto Dodge Chrysler
Acquisition in Toronto
Lakewood Chevrolet
Acquisition in Edmonton
Tower Chrysler Acquisition in
Calgary
November 17, 2014: Announced approval from GM Canada to purchase an 80% non-voting equity interest
in Bridges Chevrolet Buick GMC located in North Battleford, Saskatchewan
Originally founded in 1976
The franchise retailed 396 new and 387 used vehicles in 2013
November 5, 2014: Announced approval from BMW Canada to purchase an 85% interest in the assets
(including land and building) of Auto Boulevard St. Martin Inc. in Laval, Quebec
Originally founded in 1973
The franchises retailed 2,208 new and 680 used vehicles in 2013
October 20, 2014: Announced approval from Chrysler Canada to purchase Toronto Dodge Chrysler
located in Toronto, Ontario
Originally founded over 25 years ago
The franchise retailed 615 new and 199 used vehicles in 2013
August 19, 2014: Announced approval from General Motors of Canada to purchase a 75% non-voting
equity interest in the shares of Lakewood Chevrolet located in Edmonton, Alberta
Originally founded in 1980
The franchise retailed 659 new and 343 used vehicles in 2013
August 13, 2014: Announced approval from Chrysler Canada to purchase Tower Chrysler located in
Calgary, Alberta
Originally founded over 44 years ago
The franchise retailed 889 new and 380 used vehicles in 2013
Consistent demand growth and acquisitions will provide tailwinds for Auto Canadas growth
Sources: ACQ Investor Relations
Recent Events Contd
OVERVIEW
AUTO CANADA RECENT EVENTS
Closing of Equity Financing
and Secondary Offering
ACIIC
Completion of Calgary Dealer
Group Acquisition
Dodge City Acquisition in
Saskatoon
Increased Acquisition
Guidance
July 11, 2014: Announced closing of equity financing and secondary offering
The company issued 2,565,000 common shares from treasury for gross proceeds of $200 million
CAG and its subsidiaries sold, with the full exercise of the over-allotment option, an aggregate of 2,598,500 common shares for gross proceeds of $203 million
July 4, 2014: Confirmed completion of the acquisition of six dealerships and one exclusive right to build and
operate a Nissan motor vehicle dealership on a designated property in Southeast Calgary, from the Hyatt
Automotive Group Inc. or its affiliates.
The Hyatt Dealerships are known by their trade names: Hyatt Mitsubishi, Fish Creek Nissan, Calgary Hyundai, Northland Volkswagen, Hyatt Infiniti and Crowfoot Hyundai.
June 18, 2014: Announced approval from Chrysler Canada to purchase Dodge City located in Saskatoon,
Saskatchewan
Originally founded over 45 years ago
The franchise retailed 1,056 new and 841 used vehicles in 2013
June 5, 2014: Announced an upward revision to acquisition guidance to complete an additional 8 to 10
dealership acquisitions over the next 12 months
This is in addition to the purchase agreements for eight dealerships announced April 28,2014
June 5, 2014: Announced extension of Pat Priestners employment agreement to May 31, 2019
Previous agreement expired in 2017Extension of Chairman and
CEO Employment Agreement
Appointment of CFO
June 5, 2014: Appointment of Christopher Burrows as CFO, effective September 1, 2014
Previously VP and CFO of K-Bro Linen Systems and VP Finance, Administration & Tax with Stuart Olson Construction Group
Consistent demand growth and acquisitions will provide tailwinds for Auto Canadas growth
Improving new vehicles sales in Canada in 2013 with sales increasing 4%
In 2014 Light Vehicles sales grew by 6.1% YoY with growth lead by
Porsche, Nissan, Land Rover, Jaguar and Infinity
Advances in technology, styling and safety expected to drive future growth
Auto retail sector is an increasingly large portion of the economy with
annual spending of 112B up 6.1% compared to 2012
The market is fragmented with approximately 3,500 dealerships with 2,000
owners, sector is shifting away from mom and pop dealerships
A significant proportion of dealers will be retiring in the next five years,
creating a succession planning crisis leading to significant ownership turnover
Public ownership evolving in Canada, and improving vehicle sales in 2014
Market Conditions
OVERVIEW AUTO RETAILING INDUSTRY CHARACTERISTICS
Sources: Bank of Canada, Canada Mortgage and Housing Corporation (CMHC), Marketline, Statistics Canada, and street research
NEW VEHICLE SALES BY PROVINCE VS. WCS PRICE
Vehicle sales continues to improve
-
10
20
30
40
50
60
70
80
90
100
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Jan, 2014 Apr, 2014 Jul, 2014 Oct, 2014 Jan, 2015
(US$
/bb
l)
Ontario Saskatchewan Alberta British Columbia and the Territories Rest of Canada WCS (US$/bbl)
Low barriers to entryCompetitive pricing environment
due to easy access to online information pertaining to pricing
Low risk from suppliers due to long term arrangements with
suppliersIncreasing M&A activities
AUTO RETAILING
AUTO CANADA MARKET CONDITIONS
Significant consolidation opportunities exist
Market Conditions
OVERVIEW FRAGMENTATION & SUCCESSION ISSUES
Sources: Bank of Canada, Canada Mortgage and Housing Corporation (CMHC), Marketline, Statistics Canada, and street research
CANADIAN CONSOLIDATORS STORE COUNT
Plenty of potential acquisition targets despite growing competition
2000+ owners with 3500+ dealerships in Canada
Compared to Auto Canadas 48 dealerships
More than 70% dealers are looking to retire, out of which 30-40%
estimate the sale to an outside buyer as a realistic exit opportunity
858 addressable targets which represent significant opportunities
for consolidation
3,500
dealerships in
Canada
2,450 of them
retiring
858 possible
targets
0
10
20
30
40
50
AutoCanada Go Auto Murray Jim Pattison Wheaton AutoPlanet Rafih Group John Scotti Car Nation Myers
Western Canada Ontario Quebec Atlantic Canada and Territories
AUTO CANADA MARKET CONDITIONS
Sources: ACQ Investor Relations
Thesis Point 1: Accretive Acquisition Opportunities
AUTOCANADA THESIS POINT 1
ACIIC
Robust and accretive acquisition opportunities
THE RIGHT BRANDS IN THE RIGHT LOCATIONS ACQUISITION TARGETS
ANNUAL ACQUISITIONS
The market is fragmented with approximately 3,500 dealerships
with 2,000 owners, sector is shifting away from mom and pop dealerships
ACQ has received approval for a 2% NCIB, totaling a repurchase
program of up to 490,193 common shares between February 20,
2015 to February 19, 2016
Benefits of smaller dealership acquisition
Currently acquired at lower multiples 4-6X EV/EBITDA
Any acquisition at the current multiple of 18.5X
EV/EBITDA is accretive
STRONG BALANCE SHEET SUPPORTS ACQUISITIONS
Metric Metric
Net Debt/EBITDA 0.75X
Interest Coverage Ratio 7.15X
Working Capital 45M 22 22 2324 26
31
4852
0 0 1 1 25
17
4
2006 2009 2010 2011 2012 2013 Current 2015
Total Number of Dealerships # of Acquisitions
Fragmented market trends favor AUTOCANADA
Increasing SG&A Costs due to a shift to service based model
70% (approximately 2450 dealerships) are facing succession
issues due to retiring owners
Sources: ACQ Investor Relations
Thesis Point 2: Strong Brands and Exclusive Dealer Mix
AUTO CANADA THESIS POINT 3
ACIIC
Considering that the company owns some of the most valuable dealership locations in Canada and has a strong balance
sheet it should deserve a higher valuation due to the lower investment risk
THE RIGHT BRANDS IN THE RIGHT LOCATIONS
The majority of Auto Canadas manufacturers are in the top 10 by unit sales growth
Geographically ACQ is concentrated in Alberta and BC which
have favourable demographics, economies, and growth
32 of 48 dealerships are in Alberta and BC
Alberta personal disposable income is approximately 25% higher than the national average
Market in western Canada is heavily skewed to light trucks, which are more profitable than cars
70% of sales in western Canada are in light trucks vs 57% national average
TOP 10 OEMS BY INCREASE IN UNIT SALES
PROVINCES BY INCREASE IN UNIT SALES
2013 Volume YoY Change in 2013 Market ACQ
Rank OEM Increase Unit Sales Share Dealerships
1 Chrystler 16,336 6.7% 14.8% 11
2 Honda 13,673 10.4% 8.3% -
3 Nissan 8,403 11.3% 4.7% 3
4 GM 8,119 3.6% 13.5% 6
5 Ford 7,498 2.7% 16.3% -
6 Subaru 5,757 18.6% 2.1% 1
7 Volkswagon 3,536 6.0% 3.6% 5
8 Toyota 2,454 1.4% 10.3% -
9 Acura 1,851 10.8% 1.1% -
10 Mercedes 1,665 5.0% 2.0% -
2013 Volume YoY Change in 2013 Market ACQ
Rank Province Increase Unit Sales Share Dealerships
1 Ontario 27,556 45.0% 37.0% 3
2 Alberta 17,334 7.3% 14.7% 13
3 BC 8,037 4.7% 10.3% 10
4 Manitoba 4,809 9.7% 3.1% 4
5 Nova Scotia 3,854 8.0% 3.0% 1
6 Saskatchewan 2,757 5.0% 3.3% 2
7 Newfoundland 2,149 6.5% 2.0% -
8 New Brunswick 1,511 3.9% 2.3% 1
9 PEI 427 6.0% 0.4% -
10 Quebec 997- -0.2% 23.8% 1
REGIONAL SALES EXCLUSIVITY
OEM typically grants a single owner the right to sell its new
vehicles in a defined geographic area
Manufacturers typically do not plan to have more dealerships in an
area than the market can support
Sources: ACQ Investor Relations
Thesis Point 3: Strong Business Model
DIVERSIFIED GROWTH
AUTO CANADA THESIS POINT 2
ACQ Growth
Strategy
ACIIC
Well established and accepted
dealership model has existed for over
50+ years in the Canadian marketplace
Four business segments provide
diversified and stable revenue stream
Geographically diversified with margin opportunities in sub-scale regions
61.2%22.3%
10.9%
5.6%
LTM REVENUE AND GROSS PROFIT SPLIT
29.5%
8.1%
32.0%
30.0%
New Vehicles Used Vehicles Parts & Services Finance & Insurance
89%
86%
88%
86%
87%
91%
2009 2010 2011 2012 2013 2014 LTM
ABSORPTION RATE
Benefits of dealership franchise agreements
Exclusive sales territories
No cost consumer sales incentives
Brand marketing
Warranty repair work
Dealerships have a variable cost structure, with the parts and
service business covering most of the fixed costs of the entire
dealership (measured by absorption rate)
Parts and service business is counter cyclical and provides a stable
recurring revenue stream
Sources: ACQ Investor Relations
Thesis Point 3: Strong Business Model Contd
AUTO CANADA THESIS POINT 3
ACIIC
Geographically diversified with margin opportunities in sub-scale regions
Auto Canada has successfully acquired, opened or invested in 34
dealerships since the companys IPO in May 2006
The Company has recently experienced a significant increase in
the number of interested vendors of auto dealerships in Canada
and has noticed that many of these opportunities are large, more
profitable premium dealerships
The Company has recently experienced a significant increase in
the number of interested vendors of auto dealerships in Canada
and has noticed that many of these opportunities are large, more
profitable premium dealerships
STRONG MANAGEMENT TEAM
NEW BRANDS ADDED IN TWO YEARS
Management team understands criteria for successful acquisitions:
Right brands in the right markets
Dedicated teams for both pre-acquisition assessment and
post-acquisition integration
Focus on acquisitions that are immediately accretive
Target 15% to 20% pretax annual return on investment
AUTO CANADA Growth Strategy
Pat Priestner Executive Chairman
Tom Orysiuk President and CEO
Steve Rose Senior VP and COO
Chris Burros VP and CFO
Erin Oor VP of Corp Dev
Sources: ACQ Investor Relations
Risks
AUTO CANADA RISKS
ACIIC
Risk mitigated through diversified geographic and products segments
LACK OF DIVERSITY GROWING ACQUISITION MULTIPLES
ACQ is highly exposed to the Western Canadian economy,
especially Alberta and British Columbia.
The companys revenue is highly sensitive to local market conditions such as increased competition and reduced consumer
spending
Depressed oil prices are causing higher unemployment in Alberta,
decreasing consumer spending
Recent acquisitions in Eastern Canada and planned future ones
will reduce ACQs exposure to Western Canada
RELIANCE ON CHRYSLER
Majority of ACQs revenue come from Chrysler dealerships. Any shift in consumer preferences will negatively affect revenues
ACQ has higher margins on the SUVs and light trucks it sells so a
demand shift towards more economical cars would impact profit
margins
ACQ is consistently making acquisitions and diversifying the car
dealerships it carries so the risk will decrease over time
The Canadian auto dealership industry is currently in a
consolidation stage
As increasing number of dealers and small groups start acquiring
single dealerships or other smaller groups, acquisition multiples,
which are currently in the 4.0-6.0x EBITDA range, may increase
At higher acquisition multiples, ACQ may not be able to continue
expanding profitably
ACQs track record for a thorough due diligence process gives us confidence that they will not acquire companies at unwarranted
multiple also drop in oil prices should ease the upward pressure on
acquisition multiples
CHRYSLER AS A % OF REVENUE
16.34%
44.81%
21.43%
6.81%
AB Edmonton BC Nationally
Chrysler National Limit 8.0%
Sources: ACQ Investor Relations
Catalysts
AUTO CANADA CATALYSTS
New acquisitions will be a key driver to new share appreciation
OEM CONSTRAINTS REBOUND IN OIL MARKET
With over 70% of current dealerships intending to semi-retire/retire,
OEMs are pressured to consider lifting restrictions on public
ownership of dealerships
Restrictions have been lifted in US but not yet Canada Canada is next logical step
ACQ successfully broke restrictions in 2012 and acquired GM and
Kia dealerships. The company is experienced with negotiating with
OEMs on said restrictions
A recovery in oil prices will increase employment and by
consequence consumer confidence and consumer spending in
Alberta
Crucial because 32% of Auto Canadas revenue is generated in Alberta
BrigesChevrolet
BMWLaval/MINI
Laval
TorontoDodge
LakewoodChevrolet
TowerChrysler
Dodge City
New Used
NEW ACQUISITIONS TO BE PRICED IN
$0
$20
$40
$60
$80
$100
$120
1 YR PRICE MOVEMENT WTI
Sources: ACQ Investor Relations
Street Coverage
AUTO CANADA STREET COVERAGE
ACIIC
Valuation in line with street consensus
ANALYST PRICE TARGETS ANALYST RECOMMENDATIONS INVESTMENT HIGHLIGHTS
RBC Capital Markets
ACQ shares have traded lower in recent
months in lockstep with the price of oil.
We clearly acknowledge Auto Canadas dealer concentration in Alberta, but
believe the selloff has been sharply
overdone
CIBC Capital Markets
While ACQ shares have sold off
materially since oil started falling in the
summer, we believe the sell-off is
overdone. Deals should keep rolling in,
and the impact of lower oil prices
appears manageable. Our price target is
reduced to $71 (was $73) and we see
today's price as an attractive entry point.
ACQ remains rated SO
Company Price Target
RBC $70.00
CIBC $71.00
Cannaccord $66.00
GMP $90.00
Clarus $78.00
Cormark $70.00
Median 70.50
Mean 74.17
Current Share Price 41.65
Implied Upside 78.1%
AutoCanada
Buy Hold Sell
Sonic Auto
Penske Auto
Asbury
AutoNation
17.8x
10.8x 11.2x12.2x
13.2x13.8x
15.6x
Sources: ACQ Investor Relations
Comparables Summary
AUTO CANADA COMPARABLES SUMMARY
ACIIC
ACQ trading at premium relative to peers
EV / 2014 EBITDA
Industry Average 12.8x
EV / 2014 EBITDA
19.9x
12.6x 13.0x
15.5x17.5x 17.7x 17.7xIndustry Average 15.7x
AutoCanada Asbury AutoNation Carmax Group 1 Lithia Penske
EV/2014 LTM 18.5x 23.8x 13.1x 14.8x 15.4x 14.4x 13.1x
LTM Gross Margin 48.30% 16.50% 15.60% 15.20% 15.30% 15.00% 14.60%
LTM SSS Growth 17.30% 7.00% 7.60% 12.00% 21.80% 12.10% 11.70%
Net Debt/LTM EBITDA 0.5x 0.3x 0.3x 0.9x 0.2x 0.3x 0.2x
NTM Revenue Growth 54.30% 9.40% 7.10% 10.90% 42.90% 11.90% 6.90%
Dividend Yield 2.35% - - - 0.91% 0.68% 2.03%
$48.00
$55.89
$38.00
$29.43$31.32
$51.00
$64.49
$70.00
$66.41
$91.72
DCF Analysis Premium (30%-50%) Analyst Range Comparable Companies 52 Week Range
Sources: ACQ Investor Relations
Football Field
AUTO CANADA FOOTBALL FIELD
ACIIC
Target share price $51
Current Share Price $42.65
Note, a football field is a visual diagram used to illustrate and benchmark the bear/bull scenarios of each valuation method observed against share price performance. By doing so we can see that ACQ is trading on the low end of valuation estimates.
Sources: ACQ Investor Relations
Tornado Schedule
AUTO CANADA TORNADO SCHEDULE
ACIIC
Tornado schedule suggests that SSS growth has the greatest positive net effect on EV
Metric Benchmark Change Impact on EV
Terminal Multiple 10.0x -1.0x / 1.0x
WACC 9.00% -% / %
Long Term Grow th 2.50% -% / %
Tax Rate 0.26 -% / %
Sensitivity Range EV Tornado Range
Base EV Min Max Min Max Min Max
788.58 (1.0x) 1.0x 736.56 840.60 ($52) $52
1,068.70 (1.0%) 1.0% 1,062.69 1,074.96 ($6) $6
1,068.70 (1.0%) 1.0% 961.99 1,214.22 ($107) $146
1,068.70 (1.0%) 1.0% 1,055.58 1,081.39 ($13) $13
Rank Chart Data
2 Terminal Multiple
4 WACC
1 Long Term Grow th
3 Tax Rate
($52)
($6)
($107)
($13)
$52
$6
$146
$13
Note, a tornado schedule is used as a sanity check on ones model assumptions. Illustrated it indicates which variable had the greatest net positive/negative effect on implied EV.
Sources: ACQ Investor Relations
Model Summary
AUTO CANADA MODEL SUMMARY
Projections are far below analyst expectations
Low Base Bull
Cost of Capital 11.00% 9.00% 7.00%
Perpetuity Grow th 2.00% 2.50% 3.00%
Terminal Value 851,850.47 1,179,485.26 1,916,663.55
PV of Cash Flow s 268,362.97 268,362.97 268,362.97
PV of Terminal Value 532,610.79 800,337.71 1,413,575.09
Enterprise Value $800,973.76 $1,068,700.67 $1,681,938.06
Less: Debt 268 268 268
Less: Pref Shares
Less: Minority Int.
Add: Cash 52 52 52
Equity Value $800,757.76 $1,068,484.67 $1,681,722.06
Shares Outstanding 24103.67 24103.67 24103.67
Implied per Share $33.22 $44.33 $69.77
TV as a % of Total 106% 110% 114%
Tax Rate
Shares Outstanding Low Base Bull
Cost of Capital 11.00% 9.00% 7.00%
Terminal Multiple 8.0x 10.0x 12.0x
Terminal Value 613,332.34 766,665.42 919,998.50
PV of Cash Flow s 268,362.97 268,362.97 268,362.97
PV of Terminal Value 383,479.77 520,219.51 678,516.04
Enterprise Value $651,842.74 $788,582.48 $946,879.01
Less: Debt 268 268 268
Less: Pref Shares
Less: Minority Int.
Add: Cash 52 52 52
Equity Value $651,626.74 $788,366.48 $946,663.01
Shares Outstanding 24103.67 24103.67 24103.67
Implied per Share $27.03 $32.71 $39.27
TV as a % of Total 94% 97% 97%
Key Assumptions
Valuation Date 3/23/2015
Projection Year 2014
Currency C$
WACC 9.00%
Terminal Multiple 10.0x
Terminal Grow th 2.50%
Target Tax Rate 26.00%
Revenue Projections
AUTO CANADA REVENUE PROJECTIONS
Revenue Schedule 2011 2012 2013 2014 2015 2016 2017 2018
Total Revenue 1,409,040 Organic Revenue 1,507,532 1,612,908 1,725,651 1,846,274 1,975,328
Organic Growth (%) 6.99%
Less: Wholly-Ow ned Revenue Acquisition Grow th
Calgary, Alberta (Courtesy Chrysler Dodge) 28,973 British Columbia - 3.00 2.00 3.00 3.00
Stub period (July 1st, 2013) 0.5 Alberta 2.00 2.00 3.00 2.00 2.00
Grand Prairie, Alberta (Grand Prairie Volksw agen) 57,947 Saskatchew an - - 1.00 - -
Stub period (January 4th, 2013) 1 Manitoba 1.00 1.00 - 1.00 -
Winnipeg, Manitoba (St. James Audi) 33,655 Ontario 1.00 2.00 2.00 2.00 2.00
Stub period (April 1st, 2013) 0.75 Other - - - - -
Winnipeg, Manitoba (St. James Volksw agen) 33,655 Total 4.00 8.00 8.00 8.00 7.00
Stub period (April 1st, 2013) 0.75
Winnipeg, Manitoba (Eastern Chrysler Jeep Dodge) 33,655 Acquisition Revenue Contribution
Stub period (April 1st, 2013) 0.75 British Columbia - 143,839.67 95,893.11 143,839.67 143,839.67
Subtotal 187,886 Alberta 115,893.45 115,893.45 173,840.18 115,893.45 115,893.45
Saskatchew an - - 20,707.67 - -
Less: Dealership investment revenue Manitoba 12,854.50 12,854.50 - 12,854.50 -
Saskatoon, Saskatchew an (Saskatoon Motor Products) 55,220 Ontario 35,198.00 70,396.00 70,396.00 70,396.00 70,396.00
Stub period (March 7th, 2013) 0.67 Other - - - - -
Prince Albert, Saskatchew an (Mann-Northw ay Auto Source) 27,610 Total 163,945.95 342,983.62 360,836.96 342,983.62 330,129.12
Stub period (September 9th, 2013) 0.33
Subtotal 82,831 Total Revenue 1,671,477.85 1,955,892.00 2,086,487.63 2,189,257.27 2,305,457.30
Total 270,716
Implied Growth 18.6% 17.0% 6.7% 4.9% 5.3%
Adjusted total organic revenue 1,138,324
Adjusted adjusted organic revenue grow th 8.42%
Revenue 1,009,326 1,101,902
Less: Dealership investment revenue
Sherw ood Park, Alberta (Sherw ood Park Chevrolet) - 25,990
Stub period (June 30th, 2012) 0.5
Sherw ood Park, Alberta (Sherw ood Buick GMC) - 25,990
Stub period (June 30th, 2012) 0.5
Duncan, British Columbia (Peter Baljet Chevrolet GMC Buick) - -
Stub period (March 30th, 2013) -
Total - 51,980
Adjusted total organic revenue 994,551 1,049,922
Adjusted adjusted organic revenue grow th 5.57%
Organic revenue was first projected, followed by anticipated acquisition growth
Sources: ACQ Investor Relations
Valuation Summary
AUTO CANADA VALUATION SUMMARY
ACIIC
Returns reflect base case scenario
Price Target $51.00
Current Price $41.65
Annualized Return 19.58%
Assumptions
SSS Growth 14.37%
Revenue/Dealer $50,523
Tax Rate 26%
COGS as a % of Rev 83%
DCF Analysis
Growth Rate 2%
WACC 9%
Running Case: Base
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
-
200
400
600
800
1,000
1,200
3/13/2014 5/13/2014 7/13/2014 9/13/2014 11/13/2014 1/13/2015 3/13/2015
$51.00
$48.00
$55.89
$38.00
$29.43$31.32
$51.00
$64.49
$70.00$66.41
$91.72
DCF Analysis Premium (30%-50%)
Analyst Range ComparableCompanies
52 Week Range
$48.00Current Share Price $42.65
Team B-ACIIC
APPENDIX
Sources: ACQ Investor Relations
AUTO CANADA DuPont AnalysisTHREE STEP DUPONT
AUTO CANADA DUPONT ANALYSIS
ACIIC
STATISTICS
Asset turnover decline questions asset efficiency
Three Step Method
2010 2011 2012 2013
Net Profit Margin 0.02 0.04 0.02 0.03
Asset Turnover 3.33 3.02 2.68 2.28
Equity Multipler 3.17 2.96 3.3 3.25
ROE 17.72% 32.57% 19.44% 20.08%
Five Step Method
2010 2011 2012 2013
Tax Burden 0.74 0.75 0.74 0.74
Interest Burden 0.71 0.85 0.79 0.90
EBIT Margin 0.03 0.06 0.04 0.04
Asset Turnover 3.52 3.39 2.96 2.74
Leverage 3.04 3.05 3.14 3.27
ROE 17.97% 37.67% 20.38% 24.28%
FIVE STEP DUPONT
0
0.005
0.01
0.015
0.02
0.025
0.03
0.035
0.04
0.045
0
0.5
1
1.5
2
2.5
3
3.5
2010 2011 2012 2013
Asset Turnover Equity Multipler Net Profit Margin
2010 2011 2012 2013
Tax Burden Interest Burden EBIT Margin Asset Turnover Leverage
Sources: ACQ Investor Relations
Historical Balance Sheet
AUTO CANADA HISTORICAL BALANCE SHEET
ACIIC
2014 was a leap year in acquisitions
-$11
-$29
-$6
$53
$123
2010 2011 2012 2013 2014
CASH AND CASH EQUIVALENTS
$38
$64
$34 $36
$66
2010 2011 2012 2013 2014
NET DEBT (CASH)
$26 $24 $28
$88
$155
2010 2011 2012 2013 2014
TOTAL DEBT
$126$161
$204
$264
$438
$118$138
$199
$278
$472
2010 2011 2012 2013 2014
Revolving Credit Facility Inventory
REVOLVING DEBT AND INVENTORY
Comparable Companies Analysis
AUTO CANADA COMPARABLE COMPANIES ANALYSIS
ACIIC
Price / EV /
(US$ millions, except per share data) Price Equity Value ($M) Enterprise Value ($M) LTM EPS FY1 EPS FY2 EPS LTM EBITDA FY1 EBITDA FY2 EBITDA LTM Sales FY1 Sales FY2 Sales Dividend Yield (%)
Automobile Dealers
Asbury Automotive $75.35 $2,075.2 $3,546.0 17.1x 14.8x 13.2x 14.8x 11.2x 10.4x 0.3x 0.3x 0.3x -
Autonation $60.81 $6,910.1 $12,053.5 17.3x 15.4x 13.9x 15.4x 12.7x 11.8x 0.3x 0.3x 0.3x -
Carmax $62.16 $13,052.2 $21,684.3 25.5x 23.8x 21.3x 23.8x 20.1x 19.0x 0.8x 0.9x 0.8x -
Group 1 Automotive $76.81 $1,862.4 $4,292.9 12.7x 11.4x 10.3x 11.4x 11.7x 11.0x 0.2x 0.2x 0.2x 0.91%
Lithia Motors $88.82 $2,333.7 $4,128.4 17.0x 14.4x 12.8x 14.4x 12.1x 11.0x 0.3x 0.3x 0.3x 0.68%
Penske Automotive $48.61 $4,389.5 $8,469.1 15.0x 13.1x 12.0x 13.1x 13.2x 12.2x 0.2x 0.2x 0.2x 2.03%
' ' ' ' ' ' ' ' ' ' ' ' '
Average 17.4x 15.5x 13.9x 15.5x 13.5x 12.6x 0.4x 0.4x 0.4x 1.21%
AutoCanada $42.60 $819.9 $1,285.3 20.0x 18.5x 13.8x 18.5x 17.1x 11.9x 0.3x 0.5x 0.3x 2.35%
Margins Revenue Growth EBITDA Growth
(US$ millions, except per share data) Price Equity Value ($M) Enterprise Value ($M) SSS Growth Net Debt/EBITDA Gross EBITDA LTM NTM LTM NTM ROE ROIC
Automobile Dealers
Asbury Automotive $75.35 $2,075.2 $3,546.0 7.00% 0.3x 16.50% 5.10% 9.99% 9.40% 14.59% 8.12% 23.86% 9.20%
Autonation $60.81 $6,910.1 $12,053.5 7.60% 0.3x 15.60% 4.80% 9.08% 7.10% 10.71% 5.70% 20.26% 7.10%
Carmax $62.16 $13,052.2 $21,684.3 12.00% 0.9x 15.20% 7.20% 12.10% 10.90% 8.51% 16.09% 17.11% 5.08%
Group 1 Automotive $76.81 $1,862.4 $4,292.9 21.80% 0.2x 15.30% 4.90% 34.56% 42.90% 26.76% 28.10% 8.88% 4.99%
Lithia Motors $88.82 $2,333.7 $4,128.4 12.10% 0.3x 15.00% 3.30% 18.92% 11.90% 16.38% 12.60% 22.97% 7.41%
Penske Automotive $48.61 $4,389.5 $8,469.1 11.70% 0.2x 14.60% 3.90% 11.43% 6.90% 19.80% -7.00% 18.16% 6.19%
' ' ' ' ' ' ' ' ' ' ' ' '
Average 12.03% 0.4x 15.37% 4.87% 16.01% 14.85% 16.13% 14.12% 18.54% 6.66%
AutoCanada $42.60 $819.9 $1,285.3 17.30% 0.5x 48.30% 4.83% 42.00% 54.30% 46.60% 61.80% 33.88% 7.62%
Multiple Price/Share
Low Mean High Metric Low Mean High
P/E LTM 12.7x 17.4x 25.5x $2.31 $29.34 $40.19 $58.91
P/E FY1 11.4x 15.5x 23.8x $2.50 $28.50 $38.75 $59.50
P/E FY2 10.3x 13.9x 21.3x $3.35 $34.51 $46.57 $71.36
EV/EBITDA LTM 11.4x 15.5x 23.8x $88.47 $20.35 $35.15 $65.13
EV/EBITDA FY1 11.2x 13.5x 20.1x $95.71 $22.94 $31.92 $57.70
EV/EBITDA FY2 11.0x 12.6x 19.0x $137.54 $40.94 $49.92 $85.85
Average Implied Share Price $29.43 $40.42 $66.41
Discounted Cash Flow Analysis
AUTO CANADA DISCOUNTED CASH FLOW
Projection Period
2013A 2014 2015 2016 2017 2018
Revenue $1,409,040.00 $1,671,477.85 $1,955,892.00 $2,086,487.63 $2,189,257.27 $2,305,457.30
Growth (%) 18.6% 17.0% 6.7% 4.9% 5.3%
COGS as a % of Revenue 83.00% 1,387,326.62 1623390.357 1731784.733 1817083.537 1913529.561
Gross Profit 284,151.23 332,501.64 354,702.90 372,173.74 391,927.74
Margin (%) 17.0% 17.0% 17.0% 17.0% 17.0%
SG&A as a % of Revenue 13.00% 217,292.12 254,265.96 271,243.39 284,603.45 299,709.45
EBITDA 66,859.11 78,235.68 83,459.51 87,570.29 92,218.29
Margin (%) 4.0% 4.0% 4.0% 4.0% 4.0%
Depreciation & Amortization
EBIT 66,859.11 78,235.68 83,459.51 87,570.29 92,218.29
Taxes target tax rate 26.00% 17,383.37 20,341.28 21,699.47 22,768.28 23,976.76
EBIAT 49,475.74 57,894.40 61,760.03 64,802.02 68,241.54
Plus: Depreciation & Amortization 12,382.58 13,715.92 15,142.46 16,668.71 18,301.65
Less: CAPEX 7,537.66 8,064.54 8,628.25 9,231.37 9,876.64
Less: Change in WC WACC 9.00% - - - - -
Unlevered Free Cash Flows 54,320.67 63,545.78 68,274.24 72,239.36 76,666.54
Discount Period 0.5 1.5 2.5 3.5 4.5
Discount Factor 0.96 0.88 0.81 0.74 0.68
PV of Future Cash Flow s 52,029.77 55,840.20 55,041.55 53,429.50 52,021.95
Model Inputs
Key Assumptions
Valuation Date 3/23/2015
Projection Year 2014
Currency C$
WACC 9.00%
Terminal Multiple 10.0x
Terminal Grow th 2.50%
Target Tax Rate 26.00%
Discounted Cash Flow Analysis
AUTO CANADA DISCOUNTED CASH FLOW
SENSITIVITY
WACC
8.00% 8.50% 9.00% 9.50% 10.00%
$1,068.70 1074.96 1071.80 1068.70 1065.66 1062.69
Terminal Multiple
9.0x 9.5x 10.0x 10.5x 11.0x
$788.58 736.56 762.57 788.58 814.59 840.60
Grow th in Perpetuity
1.50% 2.00% 2.50% 3.00% 3.50%
$1,068.70 961.99 1011.53 1068.70 1135.40 1214.22
Tax Rate
25.00% 25.50% 26.00% 26.50% 27.00%
$1,068.48 1081.39 1074.94 1068.48 1062.03 1055.58
WACC
$44.33 8.00% 8.50% 9.00% 9.50% 10.00%
1.5% $40.16 $40.29 $40.29 $40.16 $39.90
2.0% $38.36 $38.50 $38.50 $38.36 $38.10
2.5% $38.36 $38.50 $38.50 $38.36 $38.10
3.0% $40.16 $40.29 $40.29 $40.16 $39.90
3.5% $44.59 $44.72 $44.72 $44.59 $44.33
Terminal Multiple
$32.71 9.0x 9.5x 10.0x 10.5x 11.0x
8.0% $31.37 $30.25 $30.25 $31.37 $33.62
8.5% $30.96 $29.85 $29.85 $30.96 $33.16
9.0% $30.55 $29.47 $29.47 $30.55 $32.71
9.5% $30.15 $29.10 $29.10 $30.15 $32.27
10.0% $29.77 $28.73 $28.73 $29.77 $31.84
Historic Revenue
AUTO CANADA HISTORIC REVENUE
Revenue Schedule 2011 2012 2013
Total Revenue 1,409,040
Organic Growth (%) 6.99%
Less: Wholly-Ow ned Revenue
Calgary, Alberta (Courtesy Chrysler Dodge) 28,973
Stub period (July 1st, 2013) 0.5
Grand Prairie, Alberta (Grand Prairie Volksw agen) 57,947
Stub period (January 4th, 2013) 1
Winnipeg, Manitoba (St. James Audi) 33,655
Stub period (April 1st, 2013) 0.75
Winnipeg, Manitoba (St. James Volksw agen) 33,655
Stub period (April 1st, 2013) 0.75
Winnipeg, Manitoba (Eastern Chrysler Jeep Dodge) 33,655
Stub period (April 1st, 2013) 0.75
Subtotal 187,886
Less: Dealership investment revenue
Saskatoon, Saskatchew an (Saskatoon Motor Products) 55,220
Stub period (March 7th, 2013) 0.67
Prince Albert, Saskatchew an (Mann-Northw ay Auto Source) 27,610
Stub period (September 9th, 2013) 0.33
Subtotal 82,831
Total 270,716
Adjusted total organic revenue 1,138,324
Adjusted adjusted organic revenue grow th 8.42%
Revenue 1,009,326 1,101,902
Less: Dealership investment revenue
Sherw ood Park, Alberta (Sherw ood Park Chevrolet) - 25,990
Stub period (June 30th, 2012) 0.5
Sherw ood Park, Alberta (Sherw ood Buick GMC) - 25,990
Stub period (June 30th, 2012) 0.5
Duncan, British Columbia (Peter Baljet Chevrolet GMC Buick) - -
Stub period (March 30th, 2013) -
Total - 51,980
Adjusted total organic revenue 994,551 1,049,922
Adjusted adjusted organic revenue grow th 5.57%
Geographic Data
AUTO CANADA GEOGRAPHIC DATA
Year Ended December 31, 2013
Location of Dealership # of Dealerships Revenue % of Total Revenue Revenue/Dealership
British Columbia 9 431,519 31% 47,947
Alberta 11 637,414 45% 57,947
Saskatchew an 0 -
Manitoba 0 -
Ontario 3 105,594 7% 35,198
Other 5 234,513 17% 46,903
Total 28 1,409,040 100% 187,994
Year Ended December 31, 2012
Location of Dealership # of Dealerships Revenue % of Total Revenue Revenue/Dealership
British Columbia 9 405,500 37% 45,056
Alberta 9 467,819 42% 51,980
Saskatchew an 0 -
Manitoba 0 -
Ontario 3 92,110 8% 30,703
Other 3 136,473 12% 45,491
Total 24 1,101,902 100% 173,230
Year Ended December 31, 2011
Location of Dealership # of Dealerships Revenue % of Total Revenue Revenue/Dealership
British Columbia 9 359,725 36% 39,969
Alberta 9 411,440 41% 45,716
Saskatchew an 0 -
Manitoba 0 -
Ontario 3 107,719 11% 35,906
Other 3 130,442 13% 43,481
Total 24 1,009,326 100% 165,072
Acquisition Data
Average EBIT Margin/ Net Income/ Annual EPS/
Location of Dealerships Revenue Dealership Dealership Dealership
British Columbia 44,324 1,705 1,264 $0.06
Alberta 51,881 1,996 1,479 $0.07
Saskatchew an - - - -
Manitoba - - - -
Ontario 33,936 1,306 967 $0.05
Other 45,291 1,743 1,291 $0.06
Geographic Data