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Wall Street sees value in Group 1, Lithia acquisitions

In the dealership acquisition market, reward follows risk. The two most active acquirers among public dealership groups -- Group 1 Automotive and Lithia Motors -- are also the winners when it comes to rising valuations, according to a report released last week by dealership buy-sell adviser Erin Kerrigan.

"The market is giving credit to Group 1 and Lithia for their growth," Kerrigan told Automotive News.

To Wall Street, Group 1 and Lithia "seem more pedal to the metal" because of their acquisitions, while the other public retailers seem "much more conservative," said Kerrigan, managing director of Kerrigan Advisors in Irvine, Calif. The idea is that acquisitions will result in continued growth in per-share earnings and thus justify higher valuation multiples, she said.

During the second quarter, the price-to-earnings multiples grew at 39 percent for Group 1 and 32 percent for Lithia, Kerrigan said, double the 16 percent pace of public retailers on average for that period.

In June, Lithia announced its pending acquisition of the 27-store DCH Auto Group, one of several Lithia purchases this year and possibly the largest U.S. dealership acquisition ever. Group 1, meanwhile, has acquired seven dealerships so far in 2014.

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