Asbury Automotive Group Inc., the nation's seventh-largest new-vehicle retailer, will pay $1 billion in a cash deal to buy 10 dealerships with 17 new-vehicle franchises -- including many top performers in the Dallas and Fort Worth, Texas, markets -- from Park Place Dealerships.
The acquisition, announced Thursday, will grow Asbury's luxury revenue mix to about 50 percent from 33 percent and boost its geographic mix of revenue to 36 percent coming from Texas, where Asbury said there is a 30 percent higher penetration of luxury new-vehicle sales than the national average.
Asbury noted that that the luxury segment provides stable and strong margins, typically performs better in economic downturns and generates a higher portion of gross profit from service and parts. It predicts the acquisition will help it boost its percentage of gross profit coming from parts and service to 50 percent from 48 percent.
The parties signed asset purchase agreements on Wednesday. The deal, expected to close by the end of first quarter 2020 pending manufacturer and regulatory approvals, also includes a new Jaguar-Land Rover open point store in Austin, Texas, which is expected to open late in the first quarter next year. Park Place is a large luxury dealership group that was started by Ken Schnitzer in 1987 with one Mercedes-Benz store.
Asbury has 88 dealerships and has been growing its portfolio of stores in the past few years.
"Park Place is highly regarded as one of the best and most efficient operators of luxury stores in the industry," Asbury CEO David Hult said in a statement. "Their portfolio of stores comes with a strong base of loyal clients and 2,100 long-term team members throughout the high growth Dallas/Fort Worth market."
Asbury shares closed Thursday's trading up 7.1 percent to $122.67.
Schnitzer, chairman and founder of Park Place, said the decision to sell most of his portfolio, including the Park Place brand and two body shops in Dallas and Forth Worth, wasn’t an easy choice.
“I am extremely proud of what we have accomplished and the culture we have built at Park Place,” Schnitzer said in a statement. “I will keep my hand in the automotive industry by retaining two dealerships and a body shop in Grapevine. DFW is one of the strongest markets in the country, and Texas is a great place to do business. The future is very bright for Park Place Dealerships and the industry.”
Schnitzer will continue to own and operate Porsche Grapevine and a Mercedes-Benz store in Grapevine.
Asbury said the acquisition is expected to add $1.9 billion in annualized revenues to grow Asbury’s revenue to $9 billion. The deal includes Mercedes-Benz of Dallas, Mercedes-Benz of Fort Worth, Mercedes-Benz of Arlington, Volvo Dallas, Lexus Grapevine, Lexus Plano, Porsche Dallas, Jaguar-Land Rover Dallas Forth Worth and Park Place Premier Collection. Included are one franchise each of Bentley, Rolls-Royce, McLaren, Maserati, Karma and Sprinter.
Many of the stores are among the highest performing in the luxury space, with Mercedes-Benz of Dallas, Porsche Dallas and a Bentley dealership among the top 10 stores based on volume in the country. Jaguar-Land Rover Dallas Fort Worth, Lexus Grapevine and Lexus Plano rank in the top 15 nationally, while Volvo of Dallas is ranked in the top 20.
Hult, who on a call with analysts called the deal “transformational” for Asbury, said the acquisition presents several additional growth opportunities, as Park Place has an in-house auction and a new vehicle-subscription service.
Asbury said the purchase price involves $785 million of goodwill, about $215 million in real estate and leasehold improvements and about $30 million in parts and other fixed assets. It said it would pay for the acquisition through its existing credit, operational cash flow and from committed financing.
The company said its fourth-quarter earnings would be impacted by about 5 cents to 10 cents a share related to costs from the acquisition. The retailer also said it expects the acquisition to be accretive to earnings next year of $1 to $1.25 per share, excluding the impact of transaction costs.
It expects to realize at least $20 million in cost savings over the next three years.
Asbury of Duluth, Ga., ranks No. 7 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 105,275 new vehicles in 2018. It retailed 82,377 used vehicles for the same period, ranking it No. 9 on Automotive News' list of the top 100 dealership groups in used-vehicle sales.