As a securities analyst you have been asked to review a valuation of a closely held business, Wigwam Autoparts Heaven, Inc. (WAH), prepared by the Red Rocks Group (RRG). You are to give an opinion on the valuation and to support your opinion by analyzing each part of the valuation. WAH’s sole business is automotive parts retailing. The RRG valuation includes a section called “Analysis of the Retail Autoparts Industry,” based completely on the data in Table 19A and the following additional information:
• WAH and its principal competitors each operated more than 150 stores at year-end 1999.
• The average number of stores operated per company engaged in the retail autoparts industry is 5.3.
• The major customer base for auto parts sold in retail stores consists of young owners of old vehicles. These owners do their own automotive maintenance out of economic necessity
a. One of RRG’s conclusions is that the retail autoparts industry as a whole is in the maturity stage of the industry life cycle. Discuss three relevant items of data from Table 19A that support this conclusion.
b. Another RRG conclusion is that WAH and its principal competitors are in the consolidation stage of their life cycle.
i. Cite three relevant items of data from Table 19A that support this conclusion.
ii. Explain how WAH and its principal competitors can be in a consolidation stage while their industry as a whole is in the maturity stage.