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Experts see 2012 shaping up as big year for acquisitions
Experts see 2012 shaping up as big year for acquisitions
Dealership buyers are on the prowl. 
Large publicly held dealership groups have the money to buy and are looking at a larger range of targets than before -- including Chrysler Group franchises, which buyers have shunned for several years. A dearth of deals during the recession, brokers say, left a backlog of potential mergers and acquisitions waiting to happen. They say privately held large dealership groups also are shopping for stores. Alan Haig, co-head of automotive services for Presidio Group, of San Francisco, says the public companies spent $512.1 million on acquisitions in 2011. That was more than twice the $214 million in 2010 -- and far above a paltry $28 million in 2009. Haig expects acquisition spending by the publics to increase at least 20 percent in 2012. "It's one of those rare periods," Haig says, "where it's a good time to be a buyer and a good time to be a seller. If you're a seller, you're going to get good value off of good earnings. You're going to get a good multiple. And if you're a buyer, this is the time to put capital to work. We're near the bottom of the cycle. Sales are likely to increase. Interest rates are low. Margins are strong." Roger Penske, chairman of Penske Automotive Group, says the dealership group's revenues will grow "by $500 [million] to $700 million this year through acquisitions. We've already purchased $500 million of business this year. There could be another $100 to $200 million in additional acquisitions in 2012." Penske Automotive bought dealerships that hold seven franchises in 2011 with estimated annual revenues of about $525 million. Penske listed Austin and Round Rock, Texas, as markets for possible expansion. "We're seeing, both domestically and internationally, more interest in selling businesses," Penske says. "Some of this is driven by the amount of money it takes to meet the manufacturers' capital expenditure requests" for dealership renovations. Penske isn't just buying. "We divested about $300 million in stores last year that were not strategic," Penske says. Penske Automotive likely will shed a few stores this year, too. Penske Automotive ranks No. 2 on the Automotive News list of the top 125 U.S. dealership groups with retail sales of 155,352 new vehicles in 2010. Sheldon Sandler, managing partner of Bel Air Partners, a dealership brokerage in Hopewell, N.J., says, "There's pent-up demand to sell." "There are more buyers than ever and the credit markets have opened up," Sandler says. In addition, the intangible values of dealerships, often called blue sky, have rebounded after the dark days of 2009-10, which is good news for sellers, he says. But whether 2012 turns into a banner year for dealership M&As will depend on sellers' willingness to accept that the real estate their dealerships sit on isn't worth what it used to be, some buyers say. At Group 1 Automotive Inc., acquisitions are the top option for growth, says CEO Earl Hesterberg. In 2011, Group 1 was "exceptionally" active, he says, buying dealerships that hold 14 franchises with total estimated annual revenues of $563 million. "We certainly don't have deals locked up for that magnitude this year, but we would if we could," he says. "We clearly have the financial ability to do that," he adds. "But unless the attractive deals appear, I wouldn't predict" that 2012 will match 2011's volume. The severe drop in real-estate prices can prevent attractive deals, he says, because owners who have been in the real estate for a long time have a hard time coming to grips with the lower values. Group 1 ranks No. 4 on the Automotive News list of the top 125 dealership groups in the United States with retail sales of 97,511 new vehicles in 2010. AutoNation Inc. will continue to seek acquisition opportunities "that meet our market, brand and return on investment criteria," says CEO Mike Jackson. "We're still very disciplined on price." AutoNation ranks No. 1 on the Automotive News list of the top 125 dealership groups in the United States with retail sales of 206,456 new vehicles in 2010. AutoNation will look to expand in markets where it already has a presence, such as Baltimore, he says. Actively looking
Asbury Automotive Group also prefers to shop where it already has stores. The company is looking for acquisitions in 2012, says CEO Craig Monaghan. "We're always interested in any stores that are for sale that would work in the brands that we're focused on and in or close to the geographies we're in today," he says. Asbury's last acquisition was the December 2010 purchase of three stores in Greenville, S.C., that hold Lexus, Toyota, Jaguar, Porsche and Volvo franchises. Those stores were estimated to add $125 million in annual revenues to the company. After that purchase, management's attention shifted to planned changeovers in Asbury's CEO and in the dealership group's dealership management systems. Monaghan says price can be a barrier to more acquisitions. "It's still our perception that sellers' expectations are far greater than what buyers are willing to pay," he says. "I personally think some of that is driven by real estate. The real estate market is still depressed." Asbury ranks No. 6 on the Automotive News list of the top 125 dealership groups in the United States with retail sales of 67,232 new vehicles in 2010. Monaghan says Asbury is open to acquiring just about any brand, but it's not actively negotiating any specific deal. "We like Ford. Obviously, the Koreans have done very well; that's a light part of our portfolio," he says. "We still think very highly of our Japanese partners. There are quite a few different brands we'd be happy to add to our portfolio."
Even Chrysler? "We're open-minded to any conversation," he says.
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