What’s the LVMH brand worth?

Mull that over when valuing ultra-luxury dealerships

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Ultra-luxury franchises don’t come on the market often, and valuing one involves special considerations that often don’t apply to other auto franchises, say Willie Beck and Todd Berko, managing partners at Bel Air Partners. That’s because ultra-luxury automotive brands are in a league of their own.

“The comps for a Ferrari dealership are not Mercedes and Porsche,” Berko says. “It is LVMH, it is Gucci.”

Of course, some familiar elements come into play with ultra-luxury franchises, Beck says. From a buyer’s perspective, he says, its profit, opportunity, and return on investment.

But sometimes, those don’t matter as much as the prestige of owning the brand. Bel Air Partners is currently valuing a Lamborghini franchise, location undisclosed.

With Lambo stores, “the multiple of earnings approach kind of goes out the window,” Berko says. “There are some stores where Lambo doesn’t really make enough money to justify the price. You buy it because you want to be a Lambo dealer.”

The small number of such dealerships and their brand image create a prestige that is above and beyond mere dollar signs.

“As one person explained to me,” Berko says, “He’s not NFL rich, but he’s Ferrari rich. So, when he wants to buy that statement asset, he’s not buying the Cleveland Browns. He’s buying a Ferrari dealership.

The used car business of an ultra-luxury dealership also has an outsized role in its value, Berko says. The ultra-luxury used car business is national, he says.

So, for Ferrari, for example, “the real money is made in the used car business. The really profitable Ferrari stores in the country are the ones who have great used business and great salesmen.”

Those salesmen or women have a national network of buyers for used ultra-luxury cars, Berko says.

Northern Ohio vs. South Florida

Location plays a role in any dealership’s value, and that’s true for ultra-luxury brands, as well. It also influences the size of the facility investment.

In April of 2019, Bel Air Partners advised Bernie Moreno on the sale of his Ohio-based Cleveland Motorsports as well as Mercedes and Porsche dealerships to Canada’s Rafih Auto Group. Cleveland Motorsports included Rolls-Royce, Bentley, Maserati, Aston Martin and Lotus franchises.

While the brands were no less luxurious, the market for them in Northern Ohio is considerably smaller than it would be in other locations. As a result, buyers were not willing to utilize the same multiple of earnings to value those brands, in comparison to the multiples used for Mercedes and Porsche.

But in South Florida, where three or four Rolls Royce and Bentleys passed him while he was waiting for a Miami Heat game to let out, such franchises would be acquired based on cash flow, Beck says.

The market size also influences the size of facility investment required with an ultra-luxury franchise. The Cleveland Motorsports franchises were housed in one facility.

In an ultra-luxury market the size of South Florida, “you can build a $10 million facility for your Lamborghini business, and it would pay for itself,” Beck says.

This article was written for Getting to Go, a buy/sell newsletter from Scali Rasmussen.