auto canada (acq) v7

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


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


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


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


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


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



August 13, 2014: Announced approval from Chrysler Canada to purchase Tower Chrysler located in

Calgary, Alberta



Consistent demand growth and acquisitions will provide tailwinds for Auto Canadas growth


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


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


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


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


Thesis Point 3: Strong Business Model

DIVERSIFIED GROWTH


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


Thesis Point 3: Strong Business Model Contd


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


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%


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


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


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


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.


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.


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


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


Organic revenue was first projected, followed by anticipated acquisition growth


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


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


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


Winnipeg, Manitoba (St. James Volksw agen) 33,655


Winnipeg, Manitoba (Eastern Chrysler Jeep Dodge) 33,655


Subtotal 187,886


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


Revenue 1,009,326 1,101,902


Sherw ood Park, Alberta (Sherw ood Park Chevrolet) - 25,990


Sherw ood Park, Alberta (Sherw ood Buick GMC) - 25,990


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


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




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




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

auto canada (acq) v7

Documents