Walser finds complement in Kansas

When Paul and Andrew Walser set out last fall to expand their Minnesota dealership group, they expected a long road to the perfect deal.

But by April, the brothers had signed a letter of intent to acquire the group Paul Walser describes as the perfect complement to Walser Automotive Group's Minneapolis-area dealerships. Last week, the Walsers completed that acquisition, buying Wichita Luxury Collection, which has seven luxury-brand dealerships and 10 franchises in Wichita, Kan. Walser valued the deal at "north of $100 million."

With the acquisition, Walser Automotive expands both outside its home state and into the luxury market for the first time. The brothers aim to push the Wichita stores' sales from 2,000 new and used vehicles in 2015 to 10,000 in the next three years. They plan to double employment and apply the Walser "one-price, one-person" selling model to the Kansas stores.

"This is the best possible path to launch our group to another tier," Paul Walser told Automotive News. "If we can make this happen, it proves two things: That our model can work outside of our backyard and that we can make our model work in the luxury space."

Proving those two points should position Walser Automotive for more acquisitions and even open-point awards from manufacturers down the road, he said. 

"If both of those things are true, it will attract investors, and it will attract OEMs to want to expand their relationship with us," Walser said. "And we'll be a more significant player in opportunities that become available in the Midwest." 

The Walser brothers considered taking on outside investors for the Wichita transaction. Walser said they talked to more than 10 such outsiders ranging from private equity firms to family offices to wealthy individuals. But in the end, with a strong liquidity position, they decided to use traditional bank financing. 

With each outsider, there were conditions to the proposed arrangements that the brothers just weren't comfortable with, Walser said. He gave two examples: investors wanting a put option that could force a separation if the partnership wasn't going the way they wanted; and investors getting preferred stock and a guaranteed minimum rate of return. 

While investor backing didn't work out this time, Walser said he and his brother remain open to partners for future expansion. 

With the purchase, Walser grows to 20 total dealerships and 25 franchises in two states. In 2015, the Wichita stores sold 1,500 new and 500 used vehicles, while the Minnesota stores sold 18,000 new and 18,000 used vehicles. Those combined 2015 new-vehicle sales would have put the new Walser at No. 48 on Automotive News' list of the top 150 dealership groups based in the U.S.

In Minnesota, Walser represents primarily domestic and import mass-market brands. The Kansas stores give Walser Mercedes-Benz, BMW, Lexus, Porsche, Audi, Jaguar, Land Rover, Acura, Mini and Sprinter for the first time. 

The Walser brothers bought the Wichita stores from owners Vic Scholfield, Tom Devlin, Steve Hatchett and Bobby Cuillo. Cuillo sold a 20 percent stake but retains 5 percent ownership and will remain as managing partner of the Wichita stores, handling dealership operations and expansion efforts. 

The Walser brothers' ambitious growth targets stem from how the Wichita group has developed in recent years, Paul Walser said. It had been housed at a single location with several of its brands. When that location was condemned for roadway projects, the partners found a new, 27-acre campus in a prime area of town and began moving the stores. 

In the process of that, other automakers awarded new points to the Wichita partners, Walser said. A BMW store was acquired. Most brands are now in new, "beautifully done," stand-alone, image-compliant dealerships, he said. Work on new Acura and Porsche stores begins this month. 

"Even as they've started to parcel the franchises off to the new campus, they've maintained the one-store mentality," Walser said. "The very first thing we're going to do is run this as seven separate stores, with seven focused general managers, seven focused new-car managers, seven focused used-car managers." 

Used-car sales alone could jump from 50 a month now to 400 a month. "Wichita is a wonderful market," Walser said, "so there's no reason in the world why we can't make each of these things successful in its own right and drive volume to levels they probably never even thought possible."