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Asbury Automotive Group, Inc. ABG is set to acquire Larry H. Miller Dealerships, the eighth largest dealership in the United States, and Total Care Auto, powered by Landcar in a $3.2 billion deal, which includes roughly $740 million of real estate. The deal is expected to close in the fourth quarter of 2021 subject to the regular automobile factory terms and satisfactory closing conditions.
Asbury has obtained committed bridge financing for the agreement and plans to replace it with a combination of permanent debt and equity financing before deal completion. The deal takes into assumption an equity financing of $600 million. It is expected to be roughly 14% accretive to the company’s 2022 earnings per share and add about 20% to its 2024 earnings. The transaction has an initial targeted net leverage factor of 3.0x but the company expects the highly incremental nature of the deal to allow it to de-lever to near 3.0x over the next 18-24 months.
The Larry H. Miller Dealerships portfolio mainly consists of domestic brands and it has historically delivered strong and stable margins in the regional markets. The buyout would bolster Asbury’s regional footprint and expand its presence in the high-growth Western markets. It will mark Asbury’s foray into six Western states — Arizona, Utah, New Mexico, Idaho, California, and Washington. The acquisition seeks to add nearly $5.7 billion in expected annualized revenues, giving the company an edge to execute its five-year plan to generate $20 billion in annual revenues by 2025. The acquired assets include 54 new and seven used vehicle dealerships, and 11 collision centers. The deal is also likely to enhance the scope of Asbury’s Clicklane omni-channel platform.
Additionally, Asbury will acquire TCA, a leading provider of service contracts and other vehicle protection products. TCA is comprehensively integrated with Larry H. Miller Dealerships and presents the company with an opportunity to enter the profitable F&I business. The above deals exceed the acquisition targets set out by Asbury in its five-year strategic growth plan.
Asbury also has a number of other strategic acquisitions within its contract that are supposed to be funded with available cash and credit facilities. These align with the company’s customer-centric working model and have the scope of adding roughly $900 million in additional annualized revenues. The cumulative benefits of all the acquisitions taken together are expected to drive 2022 earnings by roughly 20% and 2024 earnings by around 28%.
Shares of Asbury have climbed 102.6% over a year compared with the industry’s 83.1% rise.
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Asbury — which shares space with other top auto players like AutoNation, Inc. AN, Lithia Motors, Inc. LAD, and Group 1 Automotive, Inc. GPI — currently has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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