Buy-Sell Activity to Plummet

Buy-Sell Activity to Plummet

March 19, 2020 — Earlier this week, the Asbury Automotive Group (ABG) filed an 8-K document with the SEC informing investors it “intends to continue to evaluate alternatives,” regarding its pending acquisition of 10 dealerships from the Park Place group in Texas.

The announcement is not a surprise given what the entire country — and world — is fighting right now. But the development indicates the dealership acquisitions will slow and perhaps grind to a halt over the next few months.

Public dealer group transactions already were trending downward (except for Lithia Motors) for the previous three years.

(The following charts are property of The Banks Report and are from its 2019 Dealership Buy-Sell Report available to premium subscribers).

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The six public dealer groups spent approximately $700 million acquiring 19 stores (U.S.) in 2019, the lowest number in more than a decade. Three groups — Lithia Motors, Asbury Automotive Group, and Group 1 Automotive — accounted for all of the U.S.-based new-car dealership acquisitions last year. Meanwhile, the public groups divested 38 dealerships last year. 

Combined, the groups, acquired 74 U.S. rooftops while selling 91 between 2017 and 2019. They spent approximately $3.1 billion on acquisition activity in that period — including purchases in foreign markets, used-car facilities, heavy truck dealerships (Penske) and collision centers. 

As of yesterday, we were hearing from sources the Park Place transaction, which was slated to close by March 31, is on hold, but not dead — yet. Obviously, Asbury can’t comment beyond what is in the 8-K filing unless there is a further development.

The deal is for $1 billion and Asbury was going to fund that with a $1.125 billion senior note offering along with other credit facilities and cash. Asbury likely is scrambling trying to refinance the terms of the debt it wants to use to finance the transaction. The world looks much different today than it did two weeks ago.

Asbury did complete the sale of its Mississippi platform — the Gray-Daniels Auto Family this week to the McLarty Automotive Group headed by Mark McLarty. The transaction should catapult the McLarty Group into the top 25 dealer group list with more than $1.7 billion in annual revenue. The Gray-Daniels group generates about $400 million in revenue annually with its five dealerships: Gray-Daniels Toyota, Gray-Daniels Nissan Brandon, Gray-Daniels Chevrolet, Gray-Daniels Nissan North, and Gray-Daniels Ford Lincoln along with one collision shop.

But with the global economy on near shut-down now, that might be the last transaction the industry sees for a while.

Any current letters of intent or transactions nearing completion will go back to the drawing board and probably put on hold until banks and the auto industry gets clarification on what the market will look like in the next several months.

Another factor is that buyers are going to be in the “cash is king,” mindset. And judging from the stock performance the last three weeks of the public dealer groups, maintaining liquidity will drive their strategic decisions for the foreseeable future.

The stock declines of the eight public dealer groups (I’m including independent used car groups CarMax and Carvana) are jarring when you see them together in print (and probably can be filed in the “Duh!” category).

Combined, the eight companies share price from February 20, 2020, to market close last night (March 18) dropped an average of 60.1% — and obviously much of the decline is due to COVID-19. it appears each of them hit their 52-week lows yesterday but rebounded slightly by the market close.

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Once the world gets through the crisis, and economic systems settle down, the acquisition activity may rebound to levels not seen before. At some level, the industry will reset and how automakers view their retail networks coming out of this will dictate much of that.

(We will be updating our earlier forecast for 2020 Vendor M&A Activity in the next few days. As of now, we expect much — if not all — activity to stop for the next several weeks. We know of several companies that were preparing books to take to the market next month, so there should be a flurry of deals completed once we get clarification on how long the current crisis will last).

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