Small, publicly traded LMP Automotive Holdings Inc. had a objective to roll up dozens of dealerships. It came upon a number of offers, purchased eight franchised shops final 12 months, entered into quite a few contracts for extra and even bought a $5.6 million airplane.
However now these offers are collapsing. LMP is exploring alternate options, together with promoting its portfolio of franchised dealerships and 4 used-vehicle facilities after it was unable to safe financing to shut seven pending transactions. Mixed, these transactions would have price the fledgling firm greater than $296 million.
LMP CEO Samer Tawfik mentioned in a information launch Wednesday that the Fort Lauderdale, Fla., retailer deliberate to terminate these offers, which the corporate lower than two weeks earlier had mentioned would start closing this month.
“Given the file M&A exercise in our sector and multiples being paid for these transactions, LMP’s board of administrators has directed administration to instantly pursue strategic alternate options, together with a possible sale of the corporate,” Tawfik mentioned within the launch.
A company governance professional says LMP’s monetary statements present an organization that’s extremely leveraged and in a extremely careworn monetary scenario.
“Within the funding banking/M&A world, ‘discover strategic alternate options together with a attainable sale’ is a code phrase for SOS,” mentioned Erik Gordon, a professor on the College of Michigan’s Ross College of Enterprise. “The ship is sinking. We have to search out someone to bail us out. So that you may need a double whammy right here: Not solely do you not have the cash to shut the offers that you’re dedicated to, however your failure to shut these offers means you might be — in some circumstances, in the event that they’re massive deposits — forfeiting the deposits.”
Automotive Information reported this month that vendor Steve McGavock of McGavock Auto Group in Texas was retaining a $1.5 million deposit after LMP’s deal to accumulate 5 of his shops fell by means of Jan. 31. It marked one other vital derailed transaction for LMP. Its highest-profile deal, to purchase a majority stake in 16 dealerships from Atlantic Automotive Group, was reduce to eight shops earlier than that deal in the end was scrapped final 12 months.
LMP mentioned in a regulatory submitting Thursday, Feb. 17, that one of many seven pending acquisitions, Chantz Scott Chrysler-Dodge-Jeep-Ram in Greeneville, Tenn., introduced in August, had been terminated.
LMP “didn’t incur any materials termination penalties pursuant to such termination,” it wrote within the submitting. That buy settlement included a $250,000 earnest cash deposit, based on an August regulatory submitting, and it wasn’t clear final week who obtained that cash. J. Chantz Scott, CEO of Chantz Scott Auto Group, didn’t reply to requests for remark.
Whether or not LMP will lose earnest cash deposits in different transactions which can be axed — with at the very least one deposit within the seven figures — is murky, because it is dependent upon particular contingencies in every settlement and on whether or not there was a default, based on dealership lawyer Leonard Bellavia, a accomplice in Bellavia Blatt regulation agency in Mineola, N.Y.
LMP’s Tawfik and COO Richard Aldahan didn’t reply to requests for remark, nor did the corporate’s lead impartial director.
Of the pending transactions, the most important by way of rooftops included shopping for an 85 p.c stake in 10 new-vehicle dealerships, a used-car heart and a fleet operations outlet from Alan Jay Automotive Community in Florida. LMP was going to pay $50 million for the dealerships’ goodwill and about $44.1 million for actual property.
Vendor Alan Wildstein declined to remark, as did Ryan Kerrigan, the vendor’s dealer and managing director of sell-side agency Kerrigan Advisors in Irvine, Calif.
One other of its pending offers was the deliberate $9 million-plus buy of Kia of East Hartford in Connecticut from Joseph Klimas Jr. and Ok&W Enterprises.
Dealer Gordon Wisbach Jr., president of GW Advertising and marketing Providers in Newton Centre, Mass., advised Automotive Information that his shopper needs to retire. The deal was initially introduced in July, and the events had prolonged the deadline by a few months and agreed to the next buy value, Wisbach mentioned. Wisbach declined to reveal that quantity.
“It is a disgrace as a result of Sam actually needs to do that,” Wisbach mentioned. “We favored working with him to purchase the shop. It is disappointing that he could not get the financing.”
Wisbach believes he can discover one other purchaser. And one other dealer thinks different sellers with canceled LMP offers will, too.
“That is nonetheless one of many busiest occasions in M&A historical past,” mentioned Dave Cantin, CEO of Dave Cantin Group, whose DCG Acquisitions agency represented one vendor in a transaction with LMP that did not shut. “With latest historic earnings, all sellers concerned in considered one of LMP’s transactions will hopefully discover a new appropriate purchaser that has a capability to execute a profitable closing.”
In late December, Tawfik mentioned in a information launch that LMP had “engaged Financial institution of America” to assist it refinance debt, and this month he mentioned in one other launch that LMP was working with “potential lenders to offer the mandatory debt financing” to accumulate the dealerships.
In its information launch this week, LMP mentioned its board of administrators feels its inventory value is undervalued; Tawfik owns about 35 p.c of LMP’s inventory, based on the corporate’s December proxy assertion.
Shares of LMP fell 26 p.c from shut on Tuesday, Feb. 15, earlier than the information to $4.95 on Thursday, Feb. 17; a 12 months earlier, the shares have been buying and selling for greater than $20.
“A few of the massive public firms are making very substantial acquisitions, and that tends to affect traders, however on this case, [LMP] by no means actually had the capital base to be as aggressive as they have been,” mentioned Sheldon Sandler, CEO of Bel Air Companions, a buy-sell advisory agency in Hopewell, N.J., which has written about LMP however just isn’t concerned in any transactions with the corporate.
Sandler mentioned that ought to LMP must promote its present dealerships, he would count on it may get value for them given the general power of the buy-sell market.
LMP itself doubtless may have a number of suitors, and never simply the nation’s six giant, publicly traded dealership teams, mentioned David Whiston, an analyst with Morningstar in Chicago who covers public auto retailers however not LMP. Whiston mentioned the consolidation in auto retail has created dealership patrons in giant and midsize privately held teams.
On the finish of September, LMP had $29.7 million in money, together with about $10.9 million in restricted money.
By means of the primary three quarters of 2021, LMP generated $1.1 million in internet earnings. The corporate plans to launch fourth-quarter outcomes March 31.
In October, LMP purchased an airplane, spending about $5.6 million, based on a regulatory submitting. It signed a $3.2 million, five-year be aware for the airplane, and month-to-month funds of $32,435 have been set to start in December, assured by Tawfik. To assist pay for the airplane, LMP acquired $2 million by means of a credit score line from ST RXR Investments, a associated firm owned by Tawfik. That credit score line was set to mature on Nov. 21, 2021, and required fee both on that date or on demand, based on the submitting.
It’s not clear from the regulatory submitting why LMP bought the airplane.
“No investor, no lender, goes to have a look at that airplane and suppose that that is good company governance,” mentioned Gordon, the U-M professor. “It is a unhealthy sign. It’s not the No. 1 — it isn’t the No. 10 — good use of money for this firm.”