Three high-volume California auto dealers have formed a holding company to consolidate dealerships in the western United States.
The $28 million deal pools 18 franchises into a 13-store chain, called FirstAmerica Automotive Inc. The dealerships, in the San Diego and San Francisco areas, have combined annual revenue of about $560 million.
The company says it may create a common brand name for the stores.
The FirstAmerica merger represents a new twist in the dealership consolidation trend, which has slowed because of weak retail auto stock prices. The dealers, who started with nine dealerships of their own, acquired four more stores and merged with a public shell corporation on July 11.
'The reason companies go public is to raise capital,' said Sheldon Sandler, an analyst with Ladenburg Thalmann & Co. Inc., a New York investment banking firm. Unlike an initial public offering, merging with a public shell does not raise capital. 'But it makes sense if you just want to jump into the pool,' said Sandler.
The shell, formerly Pacific National Venture Inc., is not in operation and never publicly traded stock. It operates like a private company, without the federal reporting requirements of a publicly traded corporation.
Merging with a public shell would ease the administrative burden if FirstAmerica were to launch a public offering, explained Tom Price, president of the new corporation. Some of the paperwork would already be done, he said.
But there is no rush to go to the public market for capital. FirstAmerica obtained a total of $75 million in financing from GE Capital Corp., of Barrington, Ill., and TCW/Crescent Mezzanine, of Los Angeles, which includes $47 million in capital to fund acquisitions. TCW/Crescent also purchased a 20 percent stake in the company, which some analysts see as a strong vote of confidence.
'They got a substantial capital infusion from private sources,' said Sandler.
FirstAmerica intends to acquire enough dealerships to add $500 million in revenue per year. The chain is focusing on the western part of the country, but could expand nationwide in the future.
The chairman of the new company is Donald Strough, 60, former president of the Val Strough Automotive Group in Oakland, Calif. In 1990, he sold the group, which at the time had 12 stores and 19 franchises.
Strough owns three California dealerships apart from FirstAmerica: Cypress Coast Lincoln-Mercury and Val Strough Honda-Mazda in Seaside; Delta Chevrolet in Antioch; and Concord Honda in Concord. He also owned Concord Honda before it merged with the FirstAmerica chain.
The other two dealers involved in the merger are Price, 53, owner of Tom Price Dealership Group in Colma, Calif.; and Steve Hallock, 41, former CEO of HG Automotive, a Concord, Calif., dealership management company, and owner of Concord Nissan.