Asbury Automotive Group announced Dec. 12 that it’s paying $1 billion in cash to buy Dallas-based luxury auto seller Park Place Dealerships, which is owned by Dallas founder Ken Schnitzer.
The parties expect to close the transaction in the first quarter.
Locke Lord counseled Park Place, including Houston partner Kevin Peter and Houston associate Elizabeth Genter. Others on the team were Dallas partner Van Jolas, Houston partners Michael Blankenship and Ed Razim and Houston associates Jason McCloskey, Hayley McElhinney, John Niedzwiecki and Shannon Schroeder.
Locke Lord partner Steve Jacobs in Houston has done real estate work for Park Place in the past.
Hill Ward Henderson in Tampa as well as Jones Day advised Asbury, with Jones Day’s team including counsel Martha Wach in Dallas.
The investment bankers included BofA Securities for Asbury (which is providing financing for the transaction) and the Presidio Group in San Francisco for Park Place.
Schnitzer is keeping Mercedes-Benz and Porsche dealerships in Grapevine and a Grapevine body shop.
“The decision to sell the company that I have spent the past three decades building has not been an easy one,” Schnitzer said in a statement. “But now is the time to enjoy my family and friends as well as explore new opportunities.”
Park Place generates around $1.9 billion in annual revenue compared with Asbury’s $6.9 billion.
The transaction is expected to boost Asbury’s earnings next year by $1 per share to $1.25, not counting transaction costs. The buyer anticipates booking pre-tax costs associated with the purchase of around 5 cents to 10 cents per share in the fourth quarter of this year.
Asbury, which is based in Duluth, Ga., said the deal will give it high volume, award winning luxury dealerships in high growth markets.
Three of Park Place’s stores are ranked among the top 10 in volume in the U.S. in their franchise group: Mercedes-Benz, Porsche and Bentley. Its Jaguar/Land Rover store in Dallas and Lexus stores in Plano and Grapevine are ranked in the top 15 and its Volvo store is ranked in the top 20. A Jaguar/Land Rover store in Austin is expected to open late in the first quarter of next year.
Asbury said the deal boosts its presence in Dallas, which is considered one of the country’s most desirable luxury markets (the segment makes up 16.5% of this year’s car sales in North Texas compared with 12.7% nationally), with Texas becoming 36% of its revenue. The deal also increases the company’s overall luxury mix to 50% from 33%.
“Park Place is highly regarded as one of the best and most efficient operators of luxury stores in the industry,” Asbury CEO and president David Hult said in a statement. “Their portfolio of stores comes with a strong base of loyal clients and 2,100 long-term team members throughout the high-growth Dallas/Fort Worth market.”
Asbury said the luxury segment has historically delivered strong and stable margins significantly above mid-line import and domestic brands. It also tends to be more resilient in downturns, have higher and more stable margins, fewer dealers nationwide and a higher portion of gross profit from parts and service.
Park Place’s sales are made up of 38% Mercedes-Benz, 32% Lexus, 11% Jaguar/Land Rover, 7% Porsche, 4% Volvo and 8% other luxury brands.
The $1 billon price tag includes $785 million of goodwill, around $215 million for real estate and leasehold improvements and about $30 million for parts and fixed assets. It doesn’t include inventory.
Asbury said it expects to achieve significant synergies from the combination over the next three years.
The purchase price reflects a 10 times multiple on around $100 million of EBITDA, including expected run-rate synergies of at least $20 million that should be realized over the next three years. More profit will come from the new Jaguar/Land Rover store in Austin.
Asbury also expects $11 million in annual cash tax savings from goodwill amortization with a present value of around $90 million. “In all, we believe the returns on this investment will exceed our cost of capital and should deliver substantial value to our shareholders,” the company said.
The buyer will fund the transaction through its existing credit facilities, cash flow from operations and the BofA financing arrangements, which it expects to replace with permanent financing before closing.
While the deal is expected to initially take Asbury above its targeted leverage range, the company believes that the transaction’s accretive nature, the business’ strength and the combined free cash flow generation will help it maintain a solid credit profile and deleverage to under 3 times by 2022.
Asbury claims to be one of the largest automotive retailers in the U.S. with 88 dealerships and 107 franchises representing 31 domestic and foreign brands of vehicles. Asbury also operates 25 collision repair centers.