Group 1 deal for Brazil's UAB Motors opens new frontier for growth
With the deal, Group 1 CEO Earl Hesterberg expects the company to enhance used vehicles, parts, service, technology and other dealership processes as the Brazil market evolves.
Group 1 Automotive Inc.'s plan to acquire one of Brazil's largest dealership groups signals another frontier for the U.S. auto industry's expansion-minded publicly traded dealership groups.
Until now, Group 1 and Penske Automotive Group have concentrated on Europe when it came to overseas acquisitions while joining their four big peers in selectively adding U.S. stores.
But with most of Europe in a prolonged sales slump, Group 1 is looking to other markets with more promising growth prospects.
"There comes a time five years from now or eight years from now when there will be less growth opportunities in both the U.S. and the U.K., and we want to provide our shareholders with a longer-term growth avenue," Group 1 CEO Earl Hesterberg said today.
The deal announced late Thursday to buy UAB Motors Participacoes will give Houston-based Group 1 a retail foothold in the world's fourth-largest new-vehicle market.
Hesterberg told Automotive News today that the company began looking at Brazil at the request of one automaker. He declined to identify the company.
The UAB deal will not preclude other acquisitions this year, Hesterberg said. He said Group 1 is also interested in China, the world's biggest new-car market, but where sales growth has slowed in recent years.
"We just have not found the right opportunity [in China] to date," Hesterberg said. "And since we've now made this commitment to Brazil, we're going to put all our energy and focus into Brazil for the near term as our growth market."
New light-vehicle sales totaled 3.8 million in Brazil last year.
The country's sales have grown at an average annual rate of more than 9 percent the last five years, according to Brazil's auto manufacturer association Anfavea.
The group is forecasting growth of at least 4 percent this year.
Group 1 executives believe Brazil, with one of the lowest vehicle-to-population ratios among developing markets, is fertile ground for future sales growth.
"The reason for Brazil is quite simple. It's growth and investors pay for growth. We work hard to grow this company," Hesterberg said. "As the market continues to evolve, we are confident that we can add value in the area of used vehicles, parts, service and the overall application of technology and processes."
Under the UAB deal, Group 1 will assume ownership of 18 dealerships -- two Toyota, four Nissan, two BMW, two BMW/Mini, three Renault, three Peugeot, one Land Rover and one Land Rover/Jaguar store.
The dealerships -- 21 franchises representing eight brands in Sao Paulo and markets in the neighboring state of Parana -- are expected to generate approximately $650 million in estimated annual revenues, Group 1 said.
The purchase price includes approximately $47.4 million in cash, 1.45 million shares of Group 1 common stock priced at $60.77 a share, and the assumption of approximately $62 million of debt. Group 1 shares closed Friday at $67.39, down half a percent.
Group 1, the fourth-largest dealership group in the United States, has been eying domestic and overseas acquisitions to take advantage of the rebound in new-vehicle sales.
In 2012, the company added 16 franchises with estimated annual revenues of $715 million, and disposed of six franchises
Group 1 currently owns 121 automotive dealerships and 31 collision centers in the United States and the United Kingdom. They market 31 automotive brands.
The Brazil deal is expected to close on or about Feb. 28, and is subject to customary closing conditions, including approval from various automakers.
The franchises include current Group 1-represented brands Toyota, Nissan, BMW and Mini, and will add four new brands – Renault, Peugeot, Land Rover and Jaguar – to Group 1's portfolio, the company said.
Group 1 said UAB is one of the largest sellers of Nissan and Peugeot vehicles and is a top five retailer of BMW, Mini and Land Rover vehicles in Brazil.
The business will continue to be operated by current management, with UAB's chairman, Lincoln da Cunha Pereira Filho, reporting to Hesterberg.
As part of the deal, Group 1 said it will appoint Pereira to its board of directors, expanding its membership to eight.
Group 1 ranked No. 4 on the latest Automotive News list of the largest U.S. dealership groups, with 102,022 new retail units sold in 2011.
Penske is ranked No. 2.
Amy Wilson, Tom Worobec and Bloomberg contributed to this report
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