ZT Motors has sights set on Southeast for growth plans

After buying three Fort Walton Beach, Fla., dealerships five years ago to enter auto retail, ZT Motors has big expansion plans.

ZT Corporate, the wealth management firm that paid $80 million for the former Quality Motors stores, now is seeking to buy up to 20 Southeast U.S. dealerships by 2023 as it aims to double pretax earnings to $30 million or more.

Growth has been atop Taseer Badar's mind since acquiring Toyota and Mazda dealerships and a Mercedes-Benz-BMW store in January 2015.

Badar, CEO of ZT Corporate — the rebranded name for ZT Wealth — said new management helped double pretax earnings at the three Fort Walton Beach stores in five years. And last fall, ZT Corporate's ZT Motors unit made its first big acquisition, buying Steve Rayman Chevrolet in Marietta, Ga., a store that dates to 1985 and is among the top-performing Chevy dealerships in its market.

"We looked at 40 deals before we did one," said Badar, who said he couldn't disclose the purchase price because of a confidentiality agreement with Rayman.

Badar said ZT Motors scoured potential acquisitions for a year and a half before making the Rayman deal. That transaction has sparked interest among dealership sellers, including from some of the public auto retailers such as Sonic Automotive Inc., he said.

"The Atlanta dealership really put us on the map," Badar said.

Badar said acquisition opportunities have emerged in the suburbs of Atlanta, which could help ZT Motors with scale and reduce costs.

While nothing is under contract, his team is reviewing 10 to 12 possible deals, as ZT Motors aims to grow in areas such as Atlanta and Houston, where ZT Corporate is based. Badar said some of the proposals include other General Motors stores, some within the Atlanta area. ZT Motors also wants to add brands such as Ford, Lexus and Honda.

"I'd love to be from Atlanta to Houston eventually," Badar said, adding that some public companies have approached ZT Motors, looking to sell certain stores in more rural areas outside Houston.

In ZT Motors' quest to double pretax earnings, Badar said the number of dealerships necessary to hit its earnings target could be fewer than 20. The target could be reached through a handful of high-performing stores, he said, or through numerous smaller deals.

ZT Corporate will secure financing to purchase dealerships, Badar said. Its investment portfolio also includes health care companies, real estate, franchised restaurants and a sports and entertainment management company.

ZT Motors wants high-performing, cash-flow-positive dealerships that can grow, Badar said. The company is interested in working with dealers who may lack a succession plan and where it can keep general managers. The Rayman store fit that model, Badar said. Its general manager, Tim Barnett, stayed on to run the store.

Bob Morris, director of the Southeast region for Tim Lamb Group — a dealership sales and acquisitions firm in Columbus, Ohio — worked with Rayman and ZT Motors. He said ZT Motors came to him and he presented them with the Steve Rayman opportunity.

Buyers have to move quickly in the Atlanta market, Morris said. "There's always stores that come on the market in the Atlanta region that just don't stay available very long."

ZT Motors may face stiff competition for strong-earning stores in the Southeast, said George Karolis, who manages the Atlanta office and is president of Presidio Group, a buy-sell advisory firm, and James Taylor, managing director of automotive at SunTrust Robinson Humphrey in Atlanta. Karolis said the Southeast and Atlanta are popular targets for buyers.

Taylor said Lithia Motors Inc., for example, just bought stores in Florida that it intends to use as a base for more Southeast acquisitions.

"Everybody has got their eyes open and are looking for the better, premium businesses," Taylor said.
For the past few years, Badar and his team worked to improve the Fort Walton Beach stores, completing new buildings for the Toyota and Mazda stores at a combined cost of about $28 million. "We wanted to get that humming, not just running," before expanding, he said.

In August 2016, ZT Motors and a partner bought a Kia store in Tallahassee, Fla. Badar called that acquisition a "little premature" and cited a facility upgrade desired by Kia and distance from the Fort Walton stores as reasons for the divestiture in 2018.

Plans also are under way to separate the BMW and Mercedes-Benz stores in Fort Walton Beach by early next year at a cost of up to $5 million, Badar said. BMW will move to the old Toyota building, and Mercedes will stay in the existing building, which will be renovated.Once completed, Badar said he expects another $1 million to $2 million in earnings, as the facilities, particularly in service, will be more inviting to customers and employees.

The four brands operating in Fort Walton bring in $10 million a year in pretax earnings — up from $4.5 million in their first year in operation as ZT Motors, Badar said. That $4.5 million number dropped from the $6 million the store earned in 2014.

Badar, a Pakistani American, became dealer principal for ZT Motors' four stores over the past year and a half. The move came as ZT Motors in July 2018 brought in Keith Monnin — a former executive at Rick Case Automotive, Bernardi Automotive Group and Group 1 Automotive Inc. — to be president. Monnin works on acquisitions and maintaining relationships with automakers and lenders, and his guidance jump-started earnings, Badar said. Garrick Hatfield, who was dealer principal of the stores, exited the company.

"We wanted to go in a different direction," Badar said. "That direction has yielded a lot of results."

When including Steve Rayman Chevrolet, ZT Motors' annual pretax earnings jump to $14.5 million, Badar said. He expects with store renovations and efficiencies, he can grow that figure up to $18 million.

Reaching $30 million pretax earnings would allow the company to explore an exit transaction for investors, such as recapitalization or selling to a larger dealership group, Badar said. He also suggested going public.

"A minority dealer going public sounds sexy," he said. "We'd probably be the only one."