Buy sell firms differ in their approach to pricing in geopolitical risk

The world is awash with geopolitical risk but the visible impact of that risk on the dealership buy sell world is surprisingly muted, buy sell professionals tell Getting to Go. Geopolitical risk is impacting deal valuation, however, though opinions vary on the severity.

“Geopolitical risk is something that all buyers take into their consideration,” Jesse Stopnitzky, co-owner of Performance Brokerage Services, tells Getting to Go, “and, as such, it gets factored into our analysis.”

He characterizes geopolitical risk as a factor influencing the risk versus reward calculation involved in the desired return on an investment. “I don’t believe in multiple of earnings, I believe in return on investment,” Stopnitzky says, “and return on investment is directly tied to risk, or rather required return on investment is tied to risk.”

Geopolitical risk and the pro forma

While a potential buyer may not specifically mention geopolitical factors such as the war in Iran or tariffs when discussing an acquisition, they create uncertainty.

Uncertainty impacts factors such as interest rates and the cost of financing and debt service, which impacts profitability. Uncertainty also impacts consumer demand. But firms factor uncertainty into their pro formas differently.

Those uncertainties make it harder to forecast a dealership’s future performance and “lack of clarity in your pro forma is going to influence the risk,” Stopnitzky says.

Buyers become more conservative and want to earn their investment back in a shorter period of time. That requires a higher rate of return and thus a lower valuation, he says.

Geopolitical risk doesn’t materially impact the pro forma Haig Partners has for specific brands “because the hold period is so long,” managing director Jayson Crouch says. There is too much uncertainty involved, he says. Tariffs, for example, have fluctuated since early last year. “I would say that a lot of the geopolitical stuff is just short run noise,” Crouch says

However, geopolitical risk does come up in conversations about specific brands that are more exposed to tariffs, Crouch says. For example, a majority of Mazda’s inventory is impacted by tariffs and prospective buyers of a Mazda franchise have asked about that, he says.

Other factors play a larger role in a brand’s desirability, Crouch says, including the manufacturer’s consistency and dealership relationship, product cadence and the like.

Geopolitical risk and multiples

“In terms of pricing, we haven’t seen an impact” of geopolitical risk in buy sell deals, Erin Kerrigan, managing director of Kerrigan Advisors tells Getting to Go. Her firm prices deals based on trailing twelve months of earnings, Kerrigan said.

Any geopolitical impact on a dealership’s pro forma would be reflected in the multiple, she said. Kerrigan Advisors has not seen a downward adjustment in multiples due to geopolitical uncertainty, she said.

“The way we look at it, our multiples are to be applied to trailing twelve months, and then you adjust the multiples up or down. If you think there is a huge pro forma upside, you’re probably going to pay a higher multiple,” Kerrigan said.

The uncertain environment of the last year has produced “a little bit of a flight to quality” among brands, Crouch says. The thinking is “if I am going to deploy capital it is going to be something that is rock solid,” he says.

Dealerships from franchises such as Toyota are even more desirable in uncertain times, Stopnitzky says. “Strong, stable, trustworthy brands” still transact and command premium prices because investors have confidence in them, he says. “It’s all investment and return driven.”