Asbury back in the market to buy car dealerships

Editor's note: This article has been updated to clarify details about the acquisition of Larry H. Miller Dealerships and LHM's Total Care Auto finance and insurance products provider.

Asbury Automotive Group Inc. executives say the retailer has cut enough debt from its books to resume buying dealerships.

Asbury CFO Michael Welch told analysts last week that the retailer didn't plan to seek new acquisitions until it had cut its leverage to 2 times earnings. CEO David Hult told Automotive News on Monday that Asbury's debt ratio is close enough to that point for the dealership group to re-enter the buy-sell market.

That ratio had been 2.7 in December 2021, the month Asbury closed on its $3.2 billion acquisition of Larry H. Miller Dealerships and LHM's Total Care Auto finance and insurance products provider. At the end of June, Asbury carried debt of 2.1 times what it earned before interest, taxes, depreciation and amortization, once adjusted for the impact of acquisitions and divestitures.

"We're at the level we want to be at," Welch said last week.

Hult said Asbury had shed leverage faster than anticipated.

"We are considering strategically aligned opportunities for disciplined growth," Hult said last week.

Welch said Asbury would prioritize acquisitions, though he didn't rule out putting the company's increased financial strength toward stock buybacks as well.

But Asbury won't buy for size's sake, Hult said. Instead, the dealership group intends to pursue "quality assets that align with who we are" and would be profitable for the group, he said.

When Asbury announced the Larry H. Miller deal in September, it disclosed a $3.2 billion purchase price, to be financed with about $600 million in equity and $2.6 billion in debt. The company's annual report, released in March, said it paid $3.19 billion for Larry H. Miller in a deal accounting rules would classify as $3.48 billion. The $3.19 million purchase involved $861.9 million in cash and equity and $2.33 billion in debt.

The timing of the Larry H. Miller acquisition and the company's subsequent debt shedding worked out well for Asbury. Hult said Asbury didn't see many companies up for sale during the first half of the year that tempted executives to depart from its plans for mergers and acquisitions through 2025 or from its leverage strategy. Asbury in April raised its 2025 revenue goal by 60 percent to $32 billion. Hult said then that $6.2 billion of the additional revenue would come from buying more stores.

"We've kind of been just dormant, waiting for the right opportunities for us," Hult said.

Asbury ended the quarter with $1.01 billion in cash and credit liquidity, up from $805.2 million at the end of the first quarter and $437 million at the end of 2021. The company held $100.1 million in cash, compared with $284.3 million at the end of the first quarter and $178.9 million at the end of last year.

"We are generating robust cash flow," Hult said.

At the time Asbury bought Larry H. Miller's 61 franchised and used-only stores and Total Care Auto, Larry H. Miller was ranked No. 8 on Automotive News' list of the top 150 dealership groups based in the U.S., with 61,097 new vehicles retailed in 2020. Asbury, of Duluth, Ga., was No. 6 on the list at that time and moved to No. 5 on Automotive News' latest list, with retail sales of 109,910 new vehicles in 2021.

Asbury sold seven Toyota and Lexus stores in the first half of 2022 to comply with automaker store-count limits. It held 148 new-vehicle dealerships consisting of 198 franchises as of Thursday.