A number of public retailers that largely sat on the sidelines through the dealership acquisition motion of the previous few years say they’re getting again within the recreation.
AutoNation Inc., Penske Automotive Group Inc., Group 1 Automotive Inc. and Sonic Automotive Inc. every indicated this month that they once more are purchasing for franchised dealerships and seeking to broaden retailer counts.
The plans by the 4 dealership teams come amid a current surge in inventory costs for public auto retailers and as rivals corresponding to Lithia Motors Inc. and Asbury Automotive Group Inc. have snapped up shops. Dealership buy-sell exercise has broadly skyrocketed following the early months of the coronavirus pandemic in 2020, when offers got here to a short-lived standstill.
“We undoubtedly have a number of conversations occurring, a number of negotiations,” Mike Jackson, CEO of AutoNation, the biggest U.S. new-vehicle retailer, mentioned final week. “I absolutely anticipate we’ll have some new-vehicle franchise acquisitions this 12 months, however I am not going to place a selected quantity on it.”AutoNation’s final sizable acquisitions had been in 2016, a 12 months that included offers corresponding to the acquisition of the 12-store Allen Samuels Auto Group in Texas. The corporate made some single-store offers in 2017 and 2018.
After a dry spell, Jackson mentioned AutoNation is on the lookout for shops that match “our technique and our footprint.”
Penske, the second-largest new-vehicle retailer within the nation, final acquired U.S. dealerships in 2018 when it bought two Lexus stores in Texas. This month, Penske mentioned it expects so as to add $600 million in annual revenue via three new franchised dealerships and what it described in a press release as “recognized acquisition targets.”
Penske spokesman Anthony Pordon mentioned $450 million of that $600 million is predicted to characterize acquisitions that would embody U.S. franchised shops, used-only shops or business trucking operations. Penske prefers shopping for in or close to markets wherein the corporate already operates.
The change in mindset on shopping for franchised dealerships got here after Penske turned “the lights off” on acquisitions final 12 months to construct its stability sheet and deal with bettering retailer efficiency and promoting underperformers, CEO Roger Penske mentioned this month. Penske offered two Honda shops in metro Houston through the fourth quarter.
Group 1 CEO Earl Hesterberg mentioned this month that the nation’s fourth-largest new-vehicle retailer deliberate to be extra “aggressive in rising externally” this 12 months. The corporate has monetary functionality so as to add $1 billion or extra in annual income via acquisitions and has offers within the pipeline, executives mentioned. Group 1 final bought shops in late 2019 when it purchased two Lexus shops in New Mexico.
Sonic President Jeff Dyke instructed Automotive Information final week that he expects the nation’s sixth-largest new-vehicle retailer will purchase some franchised dealerships this 12 months.
Sonic final purchased franchised shops in 2014 and for a number of years has been promoting shops and specializing in increasing its used-only EchoPark unit. Now, largely executed with divestitures and having improved firm liquidity, Sonic once more is on the lookout for franchised shops which might be a great tradition match, Dyke mentioned.”We have got a number of new-car sellers on the radar display now,” Dyke mentioned. “It is the primary time we have had that in a very long time.”
A number of buy-sell specialists have mentioned that they expect the publics to be active available in the market this 12 months, with among the quieter corporations returning to buy once more.
“This progress, this enlargement from Lithia and Asbury, will probably create an urge in these [other public] corporations to develop once more,” Alan Haig, president of Haig Companions, a buy-sell agency in Fort Lauderdale, Fla., said late last year.
Asbury, the seventh-largest U.S. new-vehicle retailer, last summer spent $735 million to purchase eight luxurious shops within the Dallas space that had been a part of Park Place Dealerships.
CEO David Hult this month known as Asbury’s acquisition pipeline “lively” and mentioned conversations “dramatically picked up in January.”
Lithia, the third-largest U.S. dealership group, bought about 30 shops final 12 months which might be anticipated to generate annual income of $3.5 billion. It additionally offered a handful of shops. Lithia goals to broaden annual income to $50 billion in 2025, up from $13.1 billion in 2020. The corporate has mentioned it has the flexibility so as to add $7 billion in annual income via dealership acquisitions this 12 months and that buy agreements for shops with greater than $3 billion in income are slated to shut early this 12 months.
In January, Automotive Information reported that Lithia plans to acquire Michigan’s Suburban Collection, a big, privately owned dealership group. That deal may shut this spring or summer season. Lithia also picked up two shops in Florida this month.
CEO Bryan DeBoer mentioned this month on an earnings name that Lithia has been eyeing three large groups that might fill its community geographically. One analyst requested whether or not a tie-up with one other public group can be a believable approach for Lithia to scale throughout the U.S., and DeBoer did not shoot down that concept.
Two public retailers, nonetheless, did so final week.
Sonic’s Dyke mentioned the Charlotte, N.C., firm has no real interest in promoting its 84 franchised shops. He mentioned whereas it might make sense for Lithia, given its footprint, to merge with one other public, “you could not put an AutoNation and Sonic, or an AutoNation to Asbury, or AutoNation-Group 1 or Sonic-Group 1 collectively since you’d need to dump so many shops it would not make sense.”
AutoNation’s Jackson additionally sees too many points in bringing two publics collectively, because it probably would require vital divestitures of dealerships “you simply purchased.”
“So overlap [and] an excessive amount of density in a given market is an actual, real problem for us, and so we won’t be buying one other publicly traded firm,” Jackson mentioned. “I do not see a path to the end line.”