Lithia to buy Pendragon's UK dealerships, take stake in DMS

Lithia Motors Inc., in a deal that combines its merger and acquisition prowess and future business strategies, has agreed to acquire the dealerships and fleet business of Pendragon, one of the largest auto retailers in the United Kingdom, while also forming a joint venture for Pendragon's dealership management system Pinewood.

Lithia on Monday said it plans to acquire Pendragon's 160 retail locations across the U.K., most of which are new-vehicle dealerships under the Stratstone or Evans Halshaw branding, plus Pendragon Vehicle Management, a vehicle fleet management platform made up of 15,000 to 20,000 vehicles in the U.K.

But perhaps the most far-reaching aspect of the deal is the creation of Pinewood Technologies , the remaining entity of Pendragon, which will be its own software company. Under Pendragon, Pinewood has around 30,000 users across Europe, Africa and Asia, according to Lithia CEO Bryan DeBoer.
 

Lithia will hold a 16.7 percent stake in Pinewood Technologies once the transaction closes, which is expected in the fourth quarter or first quarter of 2024, DeBoer said. Lithia then will begin to convert its existing U.K. dealerships — a majority of which it acquired in March when it bought Jardine Motors Group — to the Pinewood system.

Lithia also plans to form a joint venture with Pinewood to eventually bring a DMS to the U.S. and Canada.

"Together with Pinewood, Lithia is going to leverage its assets to build a North American software solution, DMS solution to bring to market over the next three to five years," DeBoer told Automotive News. "We don't know the exact timing, but we're working on that together. That's a massive TAM [total addressable market] to be able to expand the profit margins of what Pinewood is."

DeBoer described Pinewood as a profitable software company that is cloud based and tech-savvy.

All told, Lithia said the Pendragon acquisitions are expected to add $4.5 billion in annual revenue, the largest to date of any of its blockbuster purchases, DeBoer said. Once the deal closes, Lithia estimates its annualized revenues to be over $38 billion, getting it closer to its goal of $50 billion annualized revenue by the end of 2025.

Lithia said the partnership and acquisition of Pendragon's dealership and fleet business will cost $350 million and that it plans to finance the transaction using existing on-balance sheet capacity.

Pendragon CEO Bill Berman, the former AutoNation COO, will stay on as CEO of Pinewood, DeBoer said.

"The launch of Pinewood as a standalone company is a unique and exciting opportunity to create a best-in-class product for customers, which we can market globally and drive substantial value for our shareholders and in Lithia we have the perfect partner to help accelerate Pinewood's push into the hugely attractive North American DMS market," Berman said in a statement.

For Lithia, a completed Pendragon transaction would be a long time coming. In August 2022, there were reports that named Lithia as the unidentified bidder in a failed deal to buy Pendragon. DeBoer confirmed that Lithia had discussions then with Pendragon, adding that his company backed away. Now, by adding Pendragon, Lithia has everything it needs in the U.K., DeBoer said.

"It does round out our footprint, whereas Jardine is primarily Midlands and London," DeBoer said, referring to the group it bought in March. "This adds a lot more north of London, in the eastern part of the Midlands, as well as a fairly sizable expansion into the northern part of the country and Scotland."

Lithia, of Medford, Ore., ranks No. 1 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 271,596 new vehicles in 2022. Lithia's sales figures include dealerships outside of the U.S.