Asbury Automotive Group revives but revises its acquisition of most of Dallas-based Park Place Dealerships for $735 million.
It’s a scaled-down version of a more-encompassing $1 billion deal announced in December, before the pandemic hit the U.S., then nixed because of it.
Duluth, GA-based Asbury canceled the original deal in March shortly before the expected closing, citing uncertainty brought on by business shutdowns – including dealerships – aimed at limiting the spread of the coronavirus.
Publicly owned Asbury, ranked No.7 on the 2020 Wards Megadealer 100 with total 2019 revenue of $7.2 billion, says it reconsidered since auto sales bounced back after April.
The new transaction includes 12 new-vehicle franchises: three each for Mercedes-Benz and Sprinter van, two for Lexus, and one each for Jaguar, Land Rover, Porsche, and Volvo.
The canceled original deal had involved 19 franchises, including five ultra-luxury brands: Bentley, Rolls-Royce, McLaren, Maserati and Karma, plus an open point for Jaguar-Land Rover. The exotics and the open point are no longer part of the deal.
The original, $1 billion purchase price also included $215 million for real estate. Under the new transaction, Asbury says it will lease the land “under favorable terms with purchase options.”
The former and current deals are “apples and oranges,” because of the real estate, says Erin Kerrigan, founder and managing director of Kerrigan Advisors, Irvine, CA.
George Karolis, president of The Presidio Group, an investment bank in San Francisco, says, “The majority of the difference relates to the exclusion of two dealerships and certain properties being leased instead of purchased upfront.”
Asbury says the new purchase represents about $1.7 billion in expected annualized revenue. That’s down from about $1.9 billion for the original deal.
The new purchase price also reflects a multiple of 7.7 times a target of annual earnings before interest, taxes, depreciation and amortization of $95 million, Asbury says. The original deal reflected a multiple of 10 times EBITDA of $100 million, it says.
With the gears of the economy grinding to a halt over COVID-19-related quarantines, it should come as no surprise that auto dealership M&A – coming off a strong year in which 233 transactions were completed nationwide – has stalled.
Just last month one of the nation’s largest dealership groups – Georgia-based Asbury Automotive Group – said it was terminating its $1 billion acquisition of 17 new car franchises from Texas-based Park Place Dealerships “to preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 outbreak.”
And AutoNation, the nation’s largest auto dealership chain, said last week it was furloughing 7,000 employees, slashing executive pay and postponing more than $50 million of capital spending as sales dropped by half in March.
Amid the uncertainty, investment banks and advisors who specialize in the sector are telling clients to hold off on selling their dealerships until the crisis has passed or the stimulus package has taken effect, “hopefully sometime this summer,” says Erin Kerrigan, founder and managing director of Kerrigan Advisors, an Irvine, California-based auto industry sell-side advisory firm.
Dave Cantin, CEO and founder of automotive dealership M&A firm Dave Cantin Group, says he had roughly a dozen deals nationwide preparing to close in the first half of this year, with an average value over $25 million. None are cancelled, but all are postponed, he adds.
But as bad as things look now, sector experts say the still-healthy industry has unique attributes and could see a rebound in transactions later this year and into 2021.
Plenty of outside investment capital looking to get in, aging owners ready to exit, continuing profitability in good times and bad, and the essential nature of car ownership are among the reasons the sector can get back in gear quickly, the experts say.
Cantin says there is likely to be a spike in car sales on the other side of COVID-19. More than one million car leases come due every month, and many older cars that have been sitting idle for a while may need to be upgraded.
Moreover, a percentage of people who relied on mass transportation may be apt to move to private transportation, as fears of the coronavirus virus linger.
And though almost 17 million people have filed for unemployment in the U.S., the car manufacturers have already rolled in to offer financing relief, with General Motors announcing 0% interest loans for 84 months and deferred payments for the first six months. Ford is also offering six months payment relief and companies such as Toyota and Hyundai have launched similar programs.
“The good thing about the sector,” says Andrew Dickow, managing director of Greenwich Capital Group, “is that people need to drive, and eventually auto sales will stabilize.”
James Taylor, managing director of automotive at SunTrust Robinson Humphrey, says most dealerships are healthy, and “unless the economy is crippled for 90-120 days, most dealerships will not run out of money.”
Once M&A activity starts back up, there are plenty of private equity and family offices prepared to acquire dealerships, he says.
“Some smart investors are getting serious about buying dealerships in a significant way, including some of the nation’s largest private dealership groups with huge balance sheets,” Kerrigan adds.
Actor, musician and businessman Mark Wahlberg might be ahead of the curve. Last month the celebrity doubled down on the new car business, acquiring Haydocy Buick GMC in Columbus, Ohio – directly across the street from Mark Wahlberg Chevrolet, which he and a partner opened in 2018 after buying out a Chevy dealership. It could be a small sign of the turnaround to come.
“The automotive industry always finds a way to bounce bank, it’s just a question of how long it will take,” Cantin says.
Taylor agrees. “We are very, very, very optimistic on the ability of the sector to turn itself around in a very short period of time – quarters, not years.”
Jeff Sheban is Mergermarket’s Chicago-based Midwest Editor; Deb Balshem is a senior reporter who covers multiple industries from Fort Lauderdale.
Kerrigan Advisors and Bank of America will be hosting the second annual Women Dealers Dinner at NADA. The dinner, exclusively for women dealers and their female executives, will be held before the NADA show on Thursday, February 13. We hope you can join us for an evening of networking, conversation and industry insight.