Deal could open tech, growth opportunities at Atlantic Auto

John Staluppi Sr. says he has no immediate plans to retire. But the megadealer went on the hunt this year for an equity partner for his dealership group, one of the nation's largest.

Staluppi, 73, found that partner in LMP Automotive Holdings Inc., of Fort Lauderdale, Fla., a vehicle subscription provider and used-vehicle seller that is trying to become a major public new-vehicle retailer. LMP announced this month it would buy a majority stake in Staluppi's Atlantic Auto Group of New York.

The tie-up could provide Staluppi access to capital to expand Atlantic, which he said he will still oversee.

"My main focus was that I would continue to be the dealer operator, dealer principal and continue running the company," Staluppi told Automotive News. "Otherwise, it wouldn't make sense to me."

Atlantic represents a large chunk of Staluppi's namesake Staluppi Auto Group. LMP agreed to pay $425.6 million for a 70 percent stake in Atlantic and its 17 dealerships, plus a related logistics company. The deal, which values Atlantic at $608 million, is expected by LMP officials to close by sometime in January, but it must first clear automaker, financing and other approvals.

Staluppi Auto Group also includes stores owned by John Staluppi Jr. that are not part of the transaction. Staluppi Auto Group ranks No. 9 on Automotive News' list of the top 150 dealership groups based in the U.S., with retail sales of 62,570 new vehicles in 2019.

The deal, if completed, would give Atlantic access to a new e-commerce platform and a vehicle subscription business operated by LMP. Staluppi said he'd been eyeing a subscription service for his group and found LMP's offering an added benefit.

Immediate growth also is on the horizon for Atlantic, which has several stores under construction that are expected to open by year end. At that point, Staluppi said, Atlantic will operate 21 dealerships. Those new points are included in the deal with LMP, Atlantic CFO Robert Dito told Automotive News. Staluppi said he expects Atlantic's net income for 2020 will jump by $15 million.

Future dealership acquisitions under the Atlantic banner are possible. LMP CEO Samer Tawfik said this month that LMP, which went public in December 2019, intends to roll up more dealerships through Atlantic.

The acquisition agreement furthers LMP's aggressive growth goals. The small company, which had $17.7 million in cash on hand at the end of June, has said it aims to acquire as many as 50 new-vehicle stores by next fall. It currently owns none.

Since July, LMP has announced deals to buy all or part of nine franchised dealerships and three used-vehicle stores in four states for a total of about $120 million. Those acquisitions are expected to close starting at the end of November, LMP executives said this month.

If those previously announced purchases and the deal with Staluppi are finalized, LMP would have a total of 26 franchised dealerships, not including the Atlantic stores under construction. Tawfik said this month that LMP plans to add 30 to 40 stores in 2021.

The Atlantic dealerships and logistics business are expected to contribute to LMP an estimated $1.6 billion in revenue and $38 million in net income on an annualized basis in 2021, LMP said. Atlantic Auto is expected to generate about $52 million in net income overall in 2021, according to Dito.

The deal calls for Staluppi to retain ownership of Atlantic's real estate, which LMP will lease for five years, Staluppi said.

Tawfik told Automotive News that Staluppi plans to provide financing of $50 million for the transaction. Another about $140 million would come from a combination of corporate debt and the issuance of stock. The rest, he said, would likely be funded through working capital and/or loans taken out against the blue-sky value of individual dealerships. Blue sky is the intangible value of a dealership, including goodwill.

Tawfik said LMP could issue up to 2 million shares of stock to help pay for acquisitions. The company has about 9.9 million shares outstanding now.

LMP's stock has risen substantially since Aug. 14, when it closed at $7.40 a share. It closed at $39.01 at the end of two days of trading after the announcement of the deal with Stalupppi. It has since fallen about 32 percent, closing out last week at $26.59.

The volatility in the share price has drawn questions from posters on stock-tracking websites such as Yahoo Finance about LMP's business model and how it would secure the funding necessary to close on its announced acquisitions.

Sheldon Sandler, CEO of Bel Air Partners, a buy-sell advisory firm in Hopewell, N.J., wrote a piece about LMP last week that he shared with some 800 contacts. In it, Sandler said LMP faces "a lot of hurdles ahead" and would likely issue stock to help fund acquisitions and then use profits from the acquired dealerships to repay the debt taken on to buy Atlantic. He likened the approach to Wayne Huizenga's vision in the 1990s when he built up AutoNation Inc., now the largest new-vehicle retailer in the U.S.

"Although starting modestly, LMP has big plans and sounds awfully like Huizenga's blueprint," Sandler wrote. "It's paying substantial premiums for good, profitable dealerships largely because cheap debt and a flourishing stock market can make it all happen."

Tawfik started LMP in late 2017 with a model centered around a "flexible lease" subscription offering.

If all of LMP's planned acquisitions close, the company could have an estimated $2.2 billion in revenue on an annualized basis in 2021. The deals also would expand its employee count to more than 1,600 from 30 people today. LMP said it expects to earn about $70 million in annual pretax income from the various acquisitions.

"Atlantic is a trophy asset," Tawfik said this month in a call with investors. "We believe this asset is practically impossible to duplicate."