DVG Automotive Group managing director Lou Divirgilio has achieved a rare feat, selling a majority stake in his family business for $120.6 million, which equates to the kind of earnings multiple that only ASX companies normally attract.
DVG Automotive Group managing director Lou Divirgilio has achieved a rare feat, selling a majority stake in his family business for $120.6 million, which equates to the kind of earnings multiple that only ASX companies normally attract.
Japanese company Gulliver International announced yesterday it had agreed to acquire a 67 per cent shareholding in DVG, which has 25 new car dealerships across 10 Perth locations.
The proceeds will be shared by Mr Divirgilio and his six brothers, who each held a 14.3 per cent shareholding before the sale.
Gulliver disclosed that DVG lifted ‘net sales’ by 1 per cent, to $664.7 million, in the year to June 2014.
That made it the eighth largest private company in Western Australia, according to the BNiQ database, just below rival car dealer John Hughes Group, which had annual revenue of $690 million.
Notably, Mr Hughes recently canned plans for a stock market float, citing the downturn in the automotive market, which was believed to have cut the valuation of his business to below the rumoured $200 million figure.
Gulliver’s announcement revealed that DVG, which was advised by WA Corporate Acquisition Register managing director Clinton Bradbury, was badly affected by the downturn in automotive sales, but the company still attracted what appears to be a premium price.
Its profit before tax fell by 55 per cent to $5.9 million in the year to June 2014, while net profit after tax dropped by 61 per cent to $3.8 million.
Gulliver, which was advised by Bank of Tokyo Mitsubishi, was likely to have looked at DVG’s earnings over several years when negotiating the purchase price.
DVG’s profit before tax (PBT) averaged $9.5 million over the past three years.
On that basis, Gulliver paid 19 times earnings; i.e. $9.5 million times 19 equals $180 million, which is the amount Gulliver would have paid for a 100 per cent shareholding.
This may exaggerate the earnings multiple, as the PBT may need to be ‘normalised’, but is nonetheless a spectacular price.
By comparison, Automotive Holdings Group shares are currently trading on the ASX at a price earnings multiple of 15.4 times, while Brisbane-based A.P. Eagers is trading at 21.8 times, according to www.tradingroom.com.au. These ASX multiples are based on net profit after tax.
The DVG sale price looks even more impressive next to recent sales of other privately owned motor dealers.
AHG paid $13 million for Jason Mazda in 2013, which equated to a PBT multiple of about four times.
A better comparison, in terms of scale, was NSW-based Bradstreet Motor Group, which had annual sales of $449 million in 2013.
AHG paid $68 million for Bradstreet last year, which was a PBT multiple of 4.8 times.
AHG announced last week the $58 million purchase of Perth-based Western Pacific Automotive, which has three Mercedes-Benz dealerships, but did not disclose any earnings figures.
DVG Automotive Group was established by the Divirgilio brothers in 1996.
Gulliver is Japan's largest secondhand car dealer and has been expanding its new car business in Japan and abroad.
This has included opening dealerships in Thailand and New Zealand, and a branch in Sydney.
"This transaction adds to the new car line up for Gulliver whilst providing additional resources for DVG to grow their business across Australia," DVG said in a statement.
"This is an exciting transaction for DVG, as the existing owners will continuing to play an active role in the growth and the day to day operations of the business.
"This hands on approach will ensure that the family friendly culture of DVG, will continue to drive the highest level of customer satisfaction and encourage an engaged and productive workforce."
The sale is subject to conditions, including manufacturer approval.
