Group 1 Automotive Inc. is expanding its presence overseas with the purchase of three BMW-Mini dealerships in the United Kingdom.
Terms were not disclosed, but the stores are expected to generate $225 million in annual revenues, Group 1 said in a statement.
The Houston-based retailer bought Elms Bedford BMW-Mini, Elms Cambridge BMW-Mini and Elms Stansted BMW-Mini.
“We are pleased to expand our relationship with BMW U.K. and further leverage our scale and excellent management team in the U.K.,” Group 1 CEO Earl Hesterberg said in a statement.
British blue sky
Group 1 owns 153 dealerships in the U.S., U.K. and Brazil. The latest acquisitions put its U.K. holdings at 17 dealerships, which include BMW, Mini, Audi and Ford dealerships. Its U.K. operations are expected to generate about $1.3 billion in annual revenue with the addition of the latest stores, the company said.
Group 1’s U.K. expansion is not surprising, said a buy-sell expert who monitors publicly held auto retailers’ acquisition activity.
“Group 1’s U.K. investment is an indication that blue sky prices are more attractive in that market,” said Erin Kerrigan, managing director of financial advisory firm Kerrigan Advisors Inc. in Irvine, Calif. “Group 1 is a very disciplined investor. If U.S. dealership prices are too high to make economic sense for their shareholders, they will look elsewhere for investment opportunities that meet their return requirements. We are seeing most of the publics also come to that conclusion.”
Blue sky is the intangible value of a dealership, expressed as a multiple of adjusted pretax income.
Slowing U.S. pace
In October, Hesterberg said Group 1 would slow its U.S. acquisition pace in the near term because of high prices for dealerships and unacceptable returns.
“I don’t see those opportunities at the moment,” Hesterberg said during a conference call with analysts after the third-largest U.S. dealership group released third-quarter financial results. “Prices have gotten very, very high. I don’t see that type of pace in the U.S. in the near term.”
When seeking to add a franchise, Group 1 looks for a 15 to 20 percent return on investment on a pretax basis, CFO John Rickel said.
In the first nine months of this year, Group 1 completed 12 dealership acquisitions that are expected to add an estimated $680 million in annual revenues.
In the U.S., Group 1 said it wants to add stores in the Carolinas and Virginia. It also is eyeing some European luxury brands such as Audi and Land Rover.
In September, Group 1 sold Hassel BMW-Mini and Mercedes-Benz of Massapequa, both on New York’s Long Island. On June 23, it completed the sale of Hassel Volvo, also on Long Island. With the divestitures, Group 1 exited the Long Island market. The company said it was too costly to operate there and that it wanted to redeploy capital elsewhere.
Group 1 ranks third on the Automotive News list of the top 125 dealership groups in the United States, with retail sales of 155,866 new vehicles in 2013.