Lithia completes deal for Michigan's Suburban Collection

Lithia Motors Inc. is now the owner of southeast Michigan's Suburban Collection and 34 of its dealerships in a deal expected to add $2.4 billion in annual revenue.

The sale, first reported in January and which closed Monday, is one of the largest-ever acquisitions for Lithia as well as one of the largest auto-retail transactions of the past decade.

Specific terms of the acquisition were not disclosed.

But Lithia CEO Bryan DeBoer, in an interview, said the price Lithia has paid for recent acquisitions has been equal to 15 to 25 percent of a dealership group's annual revenue, and that the Suburban deal fell in the middle of that range. That would make the value of the deal about $500 million. He said the company's net investment includes retail operations, goodwill, some inventory and real estate.

The deal also included eight used-only stores and three collision centers.

Lithia paid for the deal using most of the remaining capital raised in concurrent equity and debt offerings last October, the statement also said. Shares in the company fell 3.7 percent to close Tuesday at $387.92.

Lithia, the nation's third-largest new-vehicle retailer in 2020, has now acquired dealerships with annualized revenue of about $6.5 billion since its July announcement of plans to generate $50 billion in revenue and earnings per share of $50 annually by 2025.

The Suburban deal gives the Medford, Ore., company 246 dealerships across the U.S., passing AutoNation Inc. in terms of store count and giving Lithia the largest network of stores in the country. AutoNation, the largest U.S. dealership group in terms of 2020 new-vehicle sales, owned and operated 235 stores at the end of 2020, including used-only AutoNation USA stores.

AutoNation remains the top dealership group in terms of new-vehicle sales even with Suburban’s sales added to Lithia’s. But the addition of Suburban, which reported 29,314 new-vehicle retail sales in 2020, does line Lithia up to vault past Penske Automotive Group Inc. to the No. 2 position in Automotive News’ top 150 dealership groups ranking. Lithia finished 2020 in the No. 3 position with 7,269 fewer new-vehicle retail sales than Penske. Lithia already had been in front of Penske in U.S. dealership count.

A definitive agreement between the two groups was signed in late January, DeBoer said. He told Automotive News that official talks between Lithia and Suburban began in November 2020.

"It's a high-performing organization that establishes our first anchor in [the Midwest] and allows us to be able to springboard to other platforms in that area," DeBoer said. "We still are looking for partners all across the country."

Suburban CEO David Fischer Jr. will stay on to run the Michigan dealerships and become a Lithia vice president, according to a statement.

"I am honored to continue to lead the Suburban Collection team, backed by the enhanced technology, selection and financing options Lithia brings with its ownership," Fischer said in a statement.

Fischer's ongoing role will be an advantage for Lithia, according to George Karolis, president of the Presidio Group, a buy-sell advisory firm in San Francisco and Atlanta, which represented the Suburban Collection in the transaction — the third time it represented sellers to Lithia over the past eight months.

"This is a plug-and-play transaction for Lithia," Karolis said. "It's hard to build a group of that size and scale from scratch in any new market."

Lithia was not represented by a broker in the Suburban deal.

The Suburban Collection acquisition is at least Lithia's biggest since the 2014 purchase of the DCH Auto Group, which had 27 stores and $2.3 billion in revenue.

Lithia acquired 34 Suburban dealerships representing 33 brands. In total, the deal covers 56 franchises in Michigan and excludes Suburban Collection's Buick-GMC and Cadillac stores in Costa Mesa, Calif.

Suburban Collection of Troy, Mich., ranked 21st in the nation for new-vehicle sales in 2020, according to the Automotive News Research & Data Center. The group sold 29,314 new vehicles last year. Founded by the Fischer family in 1948, the Suburban Collection said it sells 1 out of every 10 vehicles purchased in southeastern Michigan.