UPDATED: 6/26/14 5:03 pm ET - adds Prestige comments
Group 1 Automotive Inc. thought it had a done deal to buy an Audi store in North Miami Beach from Prestige Motor Car Imports Inc. for $72 million.
But Prestige said no. Now Group 1 is suing the luxury-import retailer to complete the transaction.
Prestige “says there is a major mistake to the purchase price, even though they signed the purchase agreement,” says Abbey Kaplan, senior partner with Kluger, Kaplan, Silverman, Katzen & Levine, in Miami. He represents Group 1.
Prestige, of North Miami Beach, sells Lamborghini, Lotus and Pagani brands, in addition to Audi.
Kaplan says that Prestige called off the deal, claiming “there was a mutual mistake” over the value of the store’s earnings before interest, taxes, depreciation and amortization. Kaplan says that is “unfathomable, given that it was their financial information that determined the price.”
Kaplan says the parties had negotiated all essential terms and agreed to them.
The suit, filed June 18 in Miami-Dade Circuit Court, names as defendants Prestige, its CEO Brett David and the trustee of David’s late father’s trust.
A call to Group 1 was not returned.
According to the suit, on April 28, Prestige signed an asset purchase agreement to sell its Audi store and a piece of nearby land to Group 1.
Group 1 put up $6 million as deposit, the suit says. But Group 1 says that Prestige failed to comply with several requirements, including approving a lease for the dealership’s property, notifying Audi about the transaction and providing access to Prestige’s financial and operations data and other documents.
The suit says Prestige notified Group 1 in writing on June 5 that it did not intend to meet those obligations. On June 9, Group 1 sent a letter demanding that Prestige comply with the obligations. Group 1 filed the suit nine days later.
“Group 1 did everything they were supposed to do. They signed every agreement that needed to be signed,” Kaplan says. “They want to do the deal. It’s frustrating for Group 1.”
Prestige’s attorney, Robert Zarco, says the parties never agreed on the “material and essential terms” of two important contracts: the real estate contract and lease agreement. Therefore, Brett David did not plan to complete the due diligence work that Group 1 was asking for in the purchase agreement.
“We did not want to start turning over the confidential and proprietary information until we knew we had the deal and we didn’t have a deal until all three contracts are signed because they are interdependent upon each other,” Zarco says.
He says there is no contract and Group 1 pressured David to sign the purchase agreement, “probably because they noticed there was a mistake on the price.”
“There is no agreement in place to renege on,” Zarco says. Zarco is the founding partner of the Miami law firm Zarco Einhorn Salkowski & Brito.
Zarco says Group 1 also violated a confidentiality agreement and disclosed to Audi the potential purchase, which created a “disastrous situation for my client. He had people coming into his office crying and people coming into his office yelling.”
Zarco says Prestige is one of the top performing Audi stores in the United States.
“Furthermore, the price was based on the wrong premise,” Zarco says. “The price was based on a multiple of net income.”
The net income number used was about $1 million less than it should have been, Zarco says, and therefore the purchase price should be $10 million to $12 million more.
“This is like a family heirloom. This is the family’s lifeblood. The dealership has created the identity of Brett David,” Zarco says. “It’s an incredibly emotional decision so he wants to make sure he does it right and consistent with how his father would have sold this business if he were to sell it.”
Group 1, of Houston, ranks No. 3 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. It has 152 dealerships in the United States, the United Kingdom and Brazil.
First in 65 deals
Kaplan says Group 1 has acquired 65 dealerships in the last five-and-a-half years in the United States and Brazil. This is the first time in that period that Group 1 has filed a lawsuit over an acquisition.
“They have a very good reputation,” Kaplan says. “And it was a very, very fair price.”