A growing number of franchise auto retailers are considering exit strategies as economic pressures and doubts about the agency model plunge the industry into a period where uncertainty is now the norm, MHA suggested.
And the consultancy suggested that macroeconomic factors prompting investors to “carefully consider their future strategies” could trigger a new period of mergers and acquisitions as foreign investors begin to look with interest at opportunities in the retail sector. retail in the UK.
Alastair Cassels, head of automotive consultancy at MHA, said: “The change in UK Prime Minister has caused the pound to fall to its lowest level in 37 years against the US dollar.
“This might be depressing news for some FOREX traders, but it represents a huge opportunity for some overseas investors. We have seen activity that would appear to back this up with acquisitions by Group 1 Automotive, Supergroup and a failed bid for Pendragon by Lithia Motors based in the United States.
“The buying power of a US-based auto investor has never been stronger. In 2014, the pound was worth $1.7 while we now appear to be approaching currency parity.
“In the context of acquiring dealerships, this is important. Considering Lithia’s recent offer to Pendragon PLC shareholders of £0.29 per share against the backdrop of the pound’s depreciation, it’s not hard to see why there is an appetite for investment strangers.
“The offer was around £400m, which would have been around $580m less than a year ago. Today that conversion is around £460m. dollars, a 20% discount.
Cassels added: “When you also consider that UK property is still seen as a long-term growth asset class, it’s no wonder there is an appetite to grow in this sector.
“Other buyers from Europe, the Middle East and South Africa are also established in the UK and known to be acquirers.”
Dealerships are overselling
UK-based acquiring car retailers recently told AM of their difficulty in negotiating purchase prices for new businesses which have seen industry headwinds drive profitability to record highs in the post -COVID.
In its recent first half business statement, AM100 PLC Vertu Motors revealed that, despite its “significant firepower to expand its franchised dealership footprint across the UK”, it would overlook 18 months of financial results. in any negotiations on new acquisitions.
Chief executive Robert Forrester told AM that companies looking to sell “have a choice”, adding: “We need to make sure that the money spent on an acquisition will give us an appropriate return. The amount of goodwill is at the heart of it.
“In my view, earnings were going to be down this year by about 50% this year, and I still don’t think I’m far off with that, so we have to acquire with that in mind.”
Swansway director Peter Smyth agreed. He told AM: “Dealers coming off the most successful two years of trading in their history are demanding top dollar for their business and that is unrealistic.
“We’ve looked at a number of companies and what we’re willing to offer and what they’re willing to accept is still quite a stretch.”
Call for franchises
MHA pointed out that auto retailers with growing franchise partners, and not looking to upset their agreements with the introduction of an agency model, may be less inclined to sell at this time due to a comparative level of certainty about their future.
He highlighted Kia and Hyundai, which took the lead and YOY are up 18% and 27%, respectively, taking shares when the rest of the top 10 lost it.
MG also looks an attractive prospect, he said, having established itself as a major player with a 3% market share and nearly 70% year-to-date growth before the arrival of the new MG4.
For those considering divesting from car dealerships, Cassels suggested now might be the time “if you don’t feel like trading during a recession.”
He added: “There is appetite from some investors who see this VUCA world as an opportunity to secure future shareholder value, but there may be an equal number who just don’t like it. the upheaval.
