Lithia plans to buy more after closing on DCH

Asbury to double pace of acquisitions

Lithia plans to buy more after closing on DCH

Monaghan: “We are talking.”
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Asbury Automotive Group Inc. aims to double its acquisition pace during the next 18 months as it pursues a new goal to buy stores adding $750 million in annual revenue during 2013-15.

Separately, Lithia Motors Inc. said it plans to acquire more dealerships, but its first priority is closing its purchase of DCH Auto Group.

Asbury's revised target represents an increase of the goal Asbury set in early 2013 to buy stores that would add about $500 million in annual revenue during 2013-15. Through the first 18 months of that period, Asbury, the nation's seventh-largest dealership group, bought stores that collectively added just more than $250 million in estimated annual revenue, CEO Craig Monaghan said.

Monaghan told Automotive News that more dealerships are available lately than in the previous six months.

"Over the last quarter, we are seeing a lot more activity on the acquisition front," he said in remarks that came after Asbury reported higher second-quarter earnings. In the quarter, Asbury's net rose 33 percent to $35.9 million on a 12 percent increase in revenue, to $1.5 billion.

"We are talking to a number of individuals about potential acquisitions. So that's why we are feeling a little more optimistic that we can accelerate the pace than we have seen in the past," Monaghan said.

More sellers are coming to market because they are at a point "in their life cycle where they need an exit plan," he said.

Asbury said last week that it had bought a Hyundai dealership in May in Deland, Fla., that would add $40 million in annual revenue. Asbury executives said the retailer primarily wants to stay within Asbury's footprint, which stretches from New Jersey to Florida to Texas. "We believe that proximity matters," Monaghan said.

Deals under discussion today would be larger than the Hyundai acquisition, Monaghan said. He told analysts that Asbury could do a much larger transaction if it made economic sense.

"I think the infrastructure is in place and that we have got a very strong balance sheet," he said. "We've access to capital. We could access the equity if we needed that as well. So I think we can do something sizable. You know, we are looking for the right opportunities in the marketplace."

Lithia, meanwhile, said that the DCH acquisition will take it to a projected $1.1 billion in revenue growth from acquisitions this year, up from $200 million last year, compared with a base year of 2012. That shoots it past what it calls Milestone 1 of $400 million and Milestone 2 of $1 billion. Milestone 3 is $1.7 billion.

The company set its milestones, which also include targets for organic revenue growth and earnings per share, in 2012, aiming to achieve them in two to six years.

But CEO Bryan DeBoer said Lithia first must integrate DCH this year. The DCH stores are estimated to generate about $2.3 billion in annual revenue.

Lithia, the nation's eighth-largest dealership group, will pay $340 million in cash and another $22.5 million in Lithia stock to acquire DCH. The transaction, expected to close in the fourth quarter, will be funded through the expansion of Lithia's existing credit facility by $600 million, mortgage financing of $200 million, and available cash flows from operations, Lithia said. Lithia's second-quarter net income jumped 50 percent on a 21 percent rise in revenues.

"The acquisition market remains robust," DeBoer said. "We purchased another three stores in the second quarter of 2014, bringing the total number of stores purchased or opened this year to eight."

DeBoer said the "potential remains for more acquisitions in 2014."

"We have been in discussions with other dealership groups and we don't know if it's the right timing for their succession planning or for their pocketbook," he said. "We do know there is interest out there for more buy-sell in general."

Even after buying DCH, Lithia's leaders said they are willing to tap the equity markets to generate cash if the right opportunity came along for another big acquisition.

Said Lithia CFO Chris Holzshu on a conference call: "If a larger acquisition comes to market, we have currency in the stock that we have and could use it."

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


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