Lithia to buy Canadian dealerships from Pfaff Automotive Partners

Lithia Motors Inc., the second-largest U.S. dealership group, is expected to purchase Ontario-based Pfaff Automotive Partners, according to a dealership buy-sell adviser who is familiar with the deal.

The transaction would mark Lithia's first foray out of the U.S. and into Canada. Lithia CEO Bryan DeBoer confirmed to Automotive News on Wednesday that the publicly traded retailer has acquisitions of Canadian dealerships, among others, under contract and slated to close within the next 90 days. Those deals under contract are expected to add $2 billion in annual revenue to Lithia.

"Canada is our No. 1 target," DeBoer told analysts Wednesday after the Medford, Ore., retailer reported second-quarter earnings. "We've spent the last five years getting to know the dealer body there and have pretty good relationships with most of the large groups and believe that something is imminent in that country."

The acquisition of Pfaff would make Lithia the second public dealership group operating in the Canadian market. AutoCanada of Alberta is currently the sole public dealership group in Canada.

Employees at Lithia and Pfaff were informed within the past week that a deal was "imminent," said Farid Ahmad, CEO of Dealer Solutions Mergers and Acquisitions, a large buy-sell advisory firm in Canada. Ahmad has squired Lithia executives around Canada during the past five years as they sought potential acquisitions, and he has worked with the Pfaff group for more than 25 years. He said he was informed by Pfaff general managers about the deal.

"It's very exciting that Lithia is coming into the Canadian market," Ahmad said. "It might open the gateway for other large groups to consider [it]."

Pfaff operates 16 dealerships across Canada, representing the Subaru, Audi, Mercedes-Benz, McLaren and BMW brands among others, according to the group's website. The luxury-heavy group also has a robust leasing portfolio, a Harley-Davidson dealership, a used-only store and a body shop, according to its website. It's not clear how many Pfaff stores are included in the pending deal with Lithia.

A spokesman for the Pfaff group declined to comment and provided a statement that read, "We have a number of business units and we are always exploring new opportunities. However, we do not comment on any transactions until they are final."

A spokeswoman for Lithia told Automotive News that the company doesn't comment on acquisitions until they are final.

DeBoer said in the Wednesday call with analysts that Lithia is looking to acquire stores in other countries. He said he expects Lithia's "acquisition cadence for the remainder of 2021 to remain strong as we build out our network within the United States and potentially internationally with the focus on English-speaking countries."

DeBoer said that Lithia has been in talks with "most of the major groups" in Canada and would prioritize a partner that shares Lithia's focus on scaling digital retailing. DeBoer previously said that early learnings from Lithia's omnichannel digital retailing platform Driveway, which was rolled out one year ago, demonstrate the potential for the platform to dominate both "domestically and internationally." Omnichannel refers to technology and processes aimed at providing a seamless buying experience for consumers whether they shop online, in-store or both.

While DeBoer declined to comment on the Canadian group with which it has a deal, he did say that "it's a special partner to us and then someone we've known for almost half a decade, and [we] really look forward to being able to announce that in the coming months."

DeBoer mentioned the United Kingdom — where competitors Penske Automotive Group Inc. and Group 1 Automotive Inc. have dealerships — and Australia as other possibilities for expansion.

"Those are a little less relevant at today's date. Those are probably two to five years out, kind of where Canada was a few years ago. So nothing urgent," DeBoer told analysts. "We really look at Canada as an extension of the United States. It has similar economic backgrounds; it has similar governmental regulation and so on. We feel very comfortable in that."

Lithia ranked No. 3 on Automotive News' most recent list of the top 150 dealership groups based in the U.S., with retail sales of 171,168 new vehicles in 2020. But with its April acquisition of 34 stores from Michigan's Suburban Collection, Lithia passed Penske to become the country's second-largest dealership group.