Lithia's acquisition in Calif. adds $1 billion in revenue

Lithia Motors Inc. said it acquired Downtown Los Angeles Auto Group in one of the biggest buy-sell transactions of the year.

The five-store addition will generate about $1 billion in annual revenue, the auto retailer said in a statement.

"I believe it's the biggest deal this year in terms of revenue added to a group," said buy-sell adviser Erin Kerrigan, managing director of Kerrigan Advisors in Irvine, Calif. Kerrigan advised Downtown Los Angeles on the deal.

The deal, which closed on Monday, is the third large acquisition for Lithia within the last 12 months.

"We are pleased to continue our robust acquisition cadence of purchasing strong assets with considerable upside," CEO Bryan DeBoer said in the statement. "These stores are located in the fast-growing downtown area, within close proximity to the Staples Center and L.A. Live, and are among the largest volume stores of their brands in the nation."

Downtown Los Angeles sells Audi, Porsche and Volkswagen under one rooftop and Mercedes-Benz, Nissan and Toyota under separate rooftops in Los Angeles, with a Nissan store in nearby Carson, Calif., Kerrigan told Automotive News.

Kerrigan said the group will keep Felix Chevrolet, the first store that founder Nick Shammas owned in 1955. The group's longtime CEO, Darryl Holter, who is married to Shammas' daughter Carole Shammas, will run it, said Kerrigan.

The group, known officially as Shammas Automotive Group, ranks No. 55 on Automotive News' list of the top 150 dealership groups based in the U.S., with annual new-vehicle retail sales of 17,683.

Lithia ranks No. 4, with annual new-vehicle retail sales of 145,772. But the Medford, Ore., group's ranking could change if its acquisition pace continues, Kerrigan said.

"By the end of this year, we could see Lithia moving to No. 3" on the list, she said, moving past Group 1 Automotive Inc. of Houston.

Downtown Los Angeles' decision to sell was driven by estate-planning considerations, Kerrigan said.

Nick Shammas died in 2003, and his wife, Jeanette, ran the group with her son-in-law Holter as CEO. She died in 2014, prompting her daughters, Carole and Diane Shammas, to sell it, Kerrigan said.

COO Elay Sung, 55, who has been with the company more than 20 years, will stay on to run the group and will become a Lithia platform vice president, said Kerrigan. Likewise, most of the group's 850 employees will remain, she said. That consistency is largely why the Shammas family chose to sell the group to Lithia, she said.

"Our client was particularly attracted to Lithia's business model, which in effect maintains the group's culture and management team while providing them with the benefits of additional scale resulting from Lithia's size and breadth as an organization," said Kerrigan. "Lithia has demonstrated their ability to integrate these groups into their corporation in a highly effective manner."

This is the most recent of several large acquisitions by Lithia, putting its dealership count at 167 in 18 states.

In 2014, Lithia bought DCH Auto Group, which had 27 stores in New York, New Jersey and Southern California. Last fall, Lithia entered markets in upstate New York with the purchase of nine stores from Carbone Auto Group. In May, Lithia purchased six dealerships from Baierl Auto Group, putting Lithia in the Pittsburgh market. That deal is estimated to provide Lithia with $500 million in additional annual revenue.

Lithia plans to expand its customer base from coast to coast, saying the Downtown Los Angeles deal "deploys approximately half of the $300 million raised in our recent senior notes offering," said DeBoer. "The remaining funds from the notes offering, our free cash flow and a recently increased syndicated credit facility support our continued growth cadence."