AutoNation could do big deals -- or none

Jackson: Constant discussions
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AutoNation Inc. could add as much as $2 billion in annual revenue through acquisitions in 2014 -- but CEO Mike Jackson isn't setting that as a target.

The nation's largest automotive retailer is looking for dealerships to buy and has the ability to make purchases that would add $1 billion, maybe even $2 billion, in annual revenue, Jackson told Automotive News. But it all depends on price and negotiation, he said.

"We could be sitting here a year from now and have done $2 billion, or we could be sitting here a year from now and have done nothing," Jackson said last week after AutoNation reported a 31 percent gain in fourth-quarter net profit. "You really don't know. You just have to see what comes to market, whether it's something we're interested in, whether we can get an agreement on price."

Jackson said he will walk away from deals that fail to meet AutoNation's pricing criteria. The company is constantly in discussions with sellers about possible deals, he said. Jackson called current pricing "fair."

AutoNation finalized the acquisitions of Honda and Hyundai stores in the Chicago area during the fourth quarter, after purchases of Honda and Hyundai dealerships in Phoenix and a Toyota-Scion store in Dallas in the second quarter. In 2013, AutoNation also was awarded new Mercedes-Benz points in the Atlanta and Tampa, Fla., markets. Those stores are expected to open by early 2015.

Power profits
Gains in all operating categories drove AutoNation's 4th-quarter and 2013 profits.
     
 Net incomeIncreaseRevenueIncrease
Q4$109.4 million31%$4.52 billion8%
Full-year$374.9 million18%$17.52 billion12%
     
Source: AutoNation

During the past six quarters, the company has acquired 12 dealerships and has been awarded four luxury franchises by manufacturers, said Jon Ferrando, AutoNation's executive vice president for corporate development and human resources. Combined, those additions are expected to contribute $1.1 billion in annual revenue when the new stores are fully operational.

That number underscores the dramatic increase in AutoNation's acquisition pace during the past 14 months. It started with a December 2012 purchase of six dealerships in Texas. One of those stores was later sold. The Texas deal marked AutoNation's first acquisition since early 2011. With the stores acquired in 2013, AutoNation now operates 228 dealerships.

Attractive acquisition opportunities will come to market during the next five years in the areas where AutoNation is seeking additional brands, Ferrando told analysts.

AutoNation had $974 million in cash and available credit at the end of 2013 for acquisitions or other uses, such as share buybacks.

"There's going to be a solid pipeline, and hopefully we'll be able to execute on those at the right price," Ferrando said. "But it's difficult to predict when a seller we're targeting will enter the marketplace and when a deal will get done."

Ultimately, the company could make no acquisitions or a lot, Jackson said. AutoNation has no targets, he said, because targets could lead to overpaying for a dealership.

Said Jackson: "We will not fall into that trap."

You can reach Amy Wilson at awilson@crain.com.


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