Lithia Motors Inc.'s purchase of DCH Auto Group Ltd. will have major implications on the buy-sell market going forward.
It could spark more activity, perhaps prompting bigger dealership groups to buy other large groups in the next year or two, brokers say.
The deal appears to disprove the theory that larger dealership groups need to be broken up and sold piecemeal because of barriers to acquiring them. Yet the Lithia-DCH case is unusual because of the very limited overlap in the two groups' brand mix.
Lithia, of Medford, Ore., will pay about $340 million in cash and another $22.5 million in Lithia stock to acquire DCH, of South Amboy, N.J. The deal is expected to close in the fourth quarter. The merged company is expected to have annual revenues of $7 billion.
Brokers say this may be the largest single U.S. dealership acquisition ever.
Ranking buy-sell deals by size isn't easy. Some purchase prices are inflated by including real estate, which others exclude, and data is unavailable for some roll-up deals done in the 1990s when groups were preparing to go public.
But Lithia-DCH at least rivals Sonic Automotive Inc.'s 1999 purchase of FirstAmerica Automotive Inc. and its 29 dealerships. Sonic paid about $232 million in stock but also assumed about $175 million in FirstAmerica's debt.
"For Lithia, which has been a West and Midwest company and secondary market consolidator, to branch out and buy this big $2 billion operator with stores in metro markets is really quite a statement," said Brodie Cobb, executive chairman of Presidio Group, a San Francisco dealership broker and advisory firm.
He added, "When you start to see M&A in a certain sector and see these larger transactions, you tend to see repetition."