Next step for Lithia Motors: the United Kingdom?
A spokesperson for publicly traded Pendragon, in an email, mentioned Automotive News to the August 5 filing and declined to comment on the identity of the bidder. Tom Dobry, Vice President of Marketing for Lithia, in an email to Automotive Newssaid it was not commenting on “any potential acquisition activity until the transaction is complete.”
But news of the failed deal shows how Lithia, America’s second-largest dealership group in 2021 but the nation’s top new-vehicle retailer in the first half of this year, may want to expand its overseas footprint.
David Whiston, a Chicago-based Morningstar analyst who covers public auto retailers, called Lithia an opportunistic buyer in a fragmented space with “tons of options” in the United States and English-speaking foreign markets.
“If they see something, they can go get it,” Whiston said, noting that Lithia has flexibility with its credit lines.
So even though the deal with Pendragon appears to have fallen through, we can expect Lithia to continue to seek deals in the US and probably the UK or Australia as well, he said.
“It’s just a matter of what’s on the table right now and at what price,” Whiston said.
Steve Young, UK-based managing director of European research and consultancy firm ICDP, said Lithia still had other potential targets in the UK.
While most dealer groups in Europe and the US are private, Young said, the UK has a higher ratio of public groups, including Lithia’s US rivals Penske Automotive Group and Group 1 Automotive. , both of whom have been in the UK for years.
“It makes perfect sense for Lithia to buy a big UK band,” Young said.
The proposed purchase of Pendragon was conditional on securing irrevocable commitments from each of the company’s five major shareholders, the UK retailer said in its filing. However, Pendragon said it was unable to engage with any of the shareholders, which Sky News identified as the Hedin Group.
“Given this lack of certainty, the bidder has withdrawn its non-binding offer and both parties have terminated discussions,” Pendragon said in the August filing.
Whiston called it a “huge problem” for a buyer if all of a seller’s stakeholders don’t agree to a deal. “I don’t blame [Lithia] for walking away if that was the reason,” he said.
Young described Pendragon as the model for large public concession groups in the UK. Former Pendragon CEO Trevor Finn quickly built the business by buying other groups and individual stores. Pendragon then acquired a vendor of dealership management systems, expanded into the United States before later pulling out, modeled a used vehicle business on US giant CarMax, and centralized some of its operations, Young added.
Pendragon is Europe’s ninth-largest dealership group by turnover with 142 new vehicle franchise points in the UK, according to Automotive News Europe2021 guide to the biggest dealerships in Europe.
“Pendragon is a nice sandbox to play in,” Young said. “He has a lot of ability and there are a lot of good basic assets there.
But Young said Pendragon’s relationship with the automakers it represents needs to be improved, and he noted there were staff retention issues at the retailer.
Pendragon is now run by Bill Berman, the former chief operating officer of AutoNation who also briefly served as president of AutoCanada’s U.S. operations. Berman joined Pendragon’s board of directors in April 2019 and was later named interim executive chairman and then CEO in February 2020.