Asbury Automotive Group has announced on July 7 the acquisition of 8 dealerships from Dallas’ Park Place. Included are 12 of the country’s largest highline franchises and 2 collision centers. This is actually a downsizing of an earlier deal, which was called off at the beginning of the COVID-19 pandemic. Asbury’s investment will be $685 million in Blue Sky or $57 million per franchise and $85 million per dealership.
Faith in the future of traditional bricks-and-mortar retail vehicle dealerships has been reaffirmed, at least by our friends at Asbury. The company points to better than expected second quarter results, especially in June, as proof that normality is just around the corner. As an aside, Bel Air’s informal survey found that dealers around the country have been holding up better than expected, confirming that, once again, old-fashioned dealers can adjust to whatever the market brings them. The deal has been realized irrespective of threats to the traditional dealership structure from used car “disruptors” like Carvana and Vroom, the direct-to-buyer Tesla, and the overall uncertainty of the economy. And that’s only a few “black swans,” or should we say “gray turkeys.”
In total Asbury is paying $735 million, including $50 million for parts, equipment and leaseholds, for what has been a highly profitable group of highline stores clustered in an excellent market. In the revised deal, real estate will be leased from the sellers. Park Place’s 8 dealerships had revenue of $1.75 billion in 2019. Bel Air estimates earnings were about $65 million, or $8 million per dealership. On that basis Asbury is paying a Blue Sky multiple of 10.5x. Happy days are here again. But wait – in their disclosure documents, Asbury claims the multiple was only 7.7x on the whole purchase price, and deducting $50 million for hard assets, Blue Sky would be a very palatable 6.6x.
What’s the difference? Asbury is basing their multiples not on 2019’s earnings, but on a three-year projection of $95 million of EBITDA, including $30 million in “synergistic cost savings.” Once again, Blue Sky, and I can’t emphasize this enough, is in the eye of the beholder and not some specious so-called expert’s newsletter. It all depends on what earnings are being used, which is dependent on what the buyer believes the opportunity to be.
Currently, Asbury has nearly half-a-billion in cash on hand, which is not contributing to all-important earnings growth. Additionally, they have a revolving credit line of $237 million.
Asbury intends to employ $536 million of their available capital plus seller financing of $200 million to close the deal. By their calculation, that should not over-lever their balance sheet. Incidentally, on the Park Place acquisition announcement Asbury’s stock gained $7.32 or an extra $140 million of market value on 19.29 million shares outstanding. Obviously the deal is welcomed by Wall Street.
Traditional dealers are survivors. Even a nuclear winter can’t kill em. Despite the economic miasma and horrendous unemployment numbers, all a result of our unprecedented pandemic, auto dealers survive and thrive. They continue to be profitable, valuable businesses even in the face of existential threats from online selling and manufacturers’ attempts to circumvent them.
With the Park Place acquisition, Asbury is making that bet in what is a whopper of a deal in any market; nevertheless, a note of caution must be expressed. Asbury is demonstrating a lot of confidence in both the future profitability of traditional car and in their ability to manage what is already a high-performing group of stores. More power to them.
Bel Air Partners has successfully represented more dealership sales than McDonald’s has sold hamburgers. Well that might not be true, but you get the idea. Call us for any reason. We’d love to hear from you.
Sheldon Sandler (908) 672-0943 Todd Berko (201) 259-6798
Willie Beck (703) 728-5844 Tom Butler (215) 317-6836