AutoCanada Inc. has agreed to buy nine of the 10 dealerships in Grossinger Auto Group of Chicago, the oldest and longest continuously operated auto retailer in Illinois.
The deal, for $86 million, establishes AutoCanada's presence in the lucrative U.S. auto retail market—with plans for more growth. It is scheduled to close April 9, will add $400 million (U.S.) in annual revenue to AutoCanada and is one of the largest acquisitions by an international buyer of a U.S. dealership group.
"This is a pivotal move for AutoCanada as this U.S. acquisition broadens our geographical reach and brand diversification through adding a combination of domestic, import and luxury dealerships to our portfolio," AutoCanada CEO Steven Landry said in a statement early Thursday. "This is exactly the kind of acquisition that will be instrumental to accelerating our growth. It is a well-established business that is immediately accretive to our earnings and brings new valuable OEM relationships."
AutoCanada, of Edmonton, Alberta, operates 54 dealerships in Canada, according to its website. It reported more than $2.3 billion in annual revenue last year and is the only publicly traded dealership group in Canada.
"It's an opportunity for AutoCanada to expand the brand set, as well as a chance to start growing in a much bigger market," said Ryan Kerrigan, managing director of buy-sell advisory firm Kerrigan Advisors in Irvine, Calif.
Kerrigan represented the Grossinger group in the deal. It came together after months of private conversations with AutoCanda's leaders, who'd expressed an interest in buying dealerships in the U.S.
"When this sale came up, we thought it'd be a good fit for their foray into the U.S.," Kerrigan told Automotive News.
From there the deal took nine months to complete, given some extra administrative hurdles involved in an international transaction, Kerrigan said.
GROW AND EXPAND
With a foothold now in the U.S., AutoCanada can raise "substantial assets" to buy more dealerships in the U.S., Kerrigan said.
"They're certainly looking at that," Kerrigan said. "They will be actively evaluating opportunities in the U.S."
AutoCanada executives have said they have expansion goals for the next five years that include a better balance of brands and a stronger coast-to-coast presence in Canada.
Meanwhile, "There are fewer sellers in Canada than there are buyers," Erin Kerrigan, a managing director of Kerrigan Advisors, told the Automotive News Canada Congress in February.
Canadian sellers should expect more interest from American buyers taking advantage of the stronger U.S. dollar, she said. However, lower prices for U.S. dealerships have Canadian groups looking south, said Kerrigan, who at the time was working on two U.S. sales to Canadian buyers.
In a March conference call to investors, Landry said AutoCanada was seeking to expand into new markets, calling its acquisition pipeline "quite strong."
When asked by an analyst if "five or six" acquisitions were possible in 2018, Landry said "absolutely," due in part to the company's financial strength.
"Our pipeline is indeed pretty thick," Landry said. "I think in 2018, we'll certainly be in our growth and expansion mode now that our fundamentals and foundation are where we want them to be."
The company reported net income of $13.3 million in the fourth quarter of 2017, a year-over-year gain of 24 percent. Revenue rose 17 percent to $570 million, while same-store sales jumped 11 percent.
Landry said AutoCanada was looking to continue expanding its presence outside of its traditional stronghold in western Canada, while adding to its portfolio of luxury and Asian brands.
Grossinger Auto Group is a 90-year-old company founded by Sam Grossinger in 1928. It grew be one of the best-selling dealership groups in the U.S., and in 2015 ranked No. 95 on Automotive News' list of the Top 150 Dealership Groups based on new-vehicle retail volume.
AutoCanada said it is buying nine of the dealerships, which represent 12 brands: Toyota, Chevrolet, Cadillac, Honda, Hyundai, Kia, Mercedes-Benz, Audi, Subaru, Volkswagen, Volvo and Lincoln.
Three of the stores are in Chicago, three are in the Chicago suburb of Lincolnwood, Ill., two are in Palatine, Ill., and one store is in Normal, Ill., a college town about midway between Chicago and St. Louis.
Grossinger's Buick-GMC-Cadillac dealership in Lincolnwood was sold separately to Zeigler Automotive Group of Kalamazoo, Mich. It is called Zeigler Buick-GMC-Cadillac Lincolnwood.
The Grossinger family opted to sell largely for succession reasons, Kerrigan said.
"The Grossingers had been in the business for three generations," Kerrigan said. "As they looked ahead to the fourth generation, they didn't see it continuing the family legacy and thought it was the right time to sell."
Caroline Grossinger, co-president of Grossinger Auto Group, said it was a "heartfelt and bittersweet" decision to sell. Grossinger wanted to ensure a buyer was "aligned with our priorities of providing employees security, continuity of our community relationships, and our focus on customer experience," she said in a media statement. "We were able to find such a group with AutoCanada."
Foreign investors in auto retail are not new.
In the 1990s, Chinese company DCH started buying U.S. dealerships. It's still in operation but it's now owned by Lithia Motors Inc. DCH stands for Dah Chong Hong, which means "great prosperous company" in Chinese.
U.K. dealership group Pendragon controls dealerships mostly in the U.K., but also in Germany and California.
Last year, Pon Holdings BV, a transportation and mobility company and luxury-brand distributor in the Netherlands, invested in IndiGO Auto Group of Houston.
The size of the investment and of the stake that Pon took in indiGO were undisclosed. IndiGO Auto Group has 10 dealerships in Houston, St. Louis, Palm Springs, Calif., and Rancho Mirage, Calif. It sells 11 luxury brands: Porsche, Audi, Jaguar, Land Rover, Rolls-Royce, Bentley, Aston Martin, Maserati, BMW, McLaren and Lamborghini.