GCG’s Q1 2020 Automotive Industry Update provides an overview of the latest trends in the sector, including recent performance, valuation multiples and the state of the middle-market M&A environment.

Key findings include the following:

• • The U.S. equity market exhibited mixed overall performance in Q1 2020. The overall market as measured by the S&P 500 and Dow Jones Industrial Average maintained their record-setting, positive trends in Q1, until hitting all-time peaks in mid-February and then fell off precipitously, largely due to the implications of COVID-19. Interestingly, on a trailing 3-year period ending March 31, 2020, the S&P 500 and DJI indices were up 9.4% and 6.1%, respectively. The Automotive industry underperformed the broader market across all segments. The best performers in the industry were the Dealers and Service Providers, which had performed in line or better than the overall market until mid-February and then ended Q1 down 14.9%. North America-based OEM Suppliers ended Q1 down 35.5%, but showed relative strength compared to their foreign counterparts, which have been the worst performing segment since the segment’s peak in Q1 2018.

• • In Q1 2020, middle-market M&A activity within the Automotive sector experienced year-over-year decreases in deal volume of approximately 27%. Deal value trends were more difficult to assess since there were only two deals in Q1 that had disclosed valuation details,  one for $21.4M and the other for $341M. Strategic buyers continue to drive overall deal activity, gaining significantly more share in Q1, reaching a high for the past five quarters and accounting for 92.7% of deal flow.

• • Automotive Retail, by far the most active sector, accounted for 60.4% of total automotive transaction volume. This can be attributed to the ongoing consolidation among dealership groups. Auto Parts and Equipment exhibited continued strength as well with 24% of the volume in Q1.

• • Select publicly traded companies representing the key sectors across the Automotive industry traded at an average multiple of 10.0x EBITDA and 1.4x revenue. Trading multiples varied significantly across and within the four categories with the strongest multiples observed in the Dealers and Service Providers segment, a trend that has continued for the past few quarters.

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