8:02 am, February 9, 2023
What is Constellation Automotive Group planning as it sweeps up shares in some of the biggest listed dealer groups in the UK?
That’s the question on the lips of car dealers and manufacturers in boardrooms up and down the country today. And with it, just what impact would any further moves have on the automotive retail landscape.
Yesterday, TDR Capital, the private equity house behind the acquisitive Constellation Automotive Group had to show its hand in Vertu Motors as its shareholding ticked over 3.1 per cent.
The submission to the London Stock Exchange showed shares had been snapped up in a variety of companies owned by TDR, including Cinch, Cinch HoldCo, Constellation Automotive Group, its top co and TDR. This had allowed it to slowly build up its stake under the radar.
However, as the firms are all ultimately controlled by the same party, when the total crossed the three per cent reporting threshold, it triggered an official announcement. It showed TDR had splashed out around £6.8m on Vertu shares and sent tongues wagging across the car industry.
The move has left many in the industry questioning what the private equity firm is planning next – especially considering the firm already owns a near-20 per cent slice of fellow listed car dealer group Lookers.
It snapped up that chunk up in February last year in what was widely regarded as a blocking move when it brokered a deal to buy 78m shares from former director Tony Bramall.
‘That was a statement of intent and told the industry that TDR didn’t want anyone to muscle in and take on Lookers without their say so,’ said one car dealer group boss.
Broker Mike Allen from Zeus Capital said at the time: ‘In our view, it is a shrewd move by Constellation to acquire a blocking stake in an undervalued business with exciting growth prospects.’
The Lookers shares came at the same time Constellation Automotive Group was busy snatching Marshall Motor Group off the Stock Market in a £325m deal.
The group sealed the deal and added Marshall to its portfolio of complimentary motor trade businesses that include used car dealer Cinch, stock acquisition firm WeBuyAnyCar.com, and disposal business BCA.
Many in the industry predicted then a super group was in the offing and that soon it would be forged with a full takeover bid for Lookers. But the Vertu Motors stake has now thrown another curveball into the mix.
Respected analyst Sanjay Vidyarthi, from broker Liberum, told Car Dealer: ‘I think a combination with Marshall is ambitious, but viable, and probably what the market needs.
‘Vertu is a top quality asset and I cannot see management or shareholders letting it go cheaply – the right valuation will be key to any successful bid, were it to emerge.’
Others in the industry, speaking behind closed doors, think it’s only a matter of time before Constellation makes its bid.
‘The car dealer groups are sleepwalking into this,’ said one leading executive.
‘TDR could already be talking to the other investors in Vertu about taking on their stakes and be about to build up their shareholding even further.
‘Vertu looks so cheap at the moment, especially when you consider what Lithia are rumoured to be paying for Jardine. Imagine what a super group of Constellation’s current assets, combined with Lookers and Vertu would look like. It would be unstoppable.’
American giant Lithia’s audacious £300m bid to buy the Ferrari and Porsche franchise holder Jardine has emboldened suitors and boosted values. Zeus Capital’s Mike Allen recently said the listed groups now look incredibly ‘good value’ in light of this bumper valuation.
While creating a super group might just be Constellation’s plan, such a move would no doubt trigger a Competition and Markets Authority investigation. Would they get such a deal through?
‘I seriously think they would,’ one car dealer boss told us. ‘That would give them about 16 per cent of the market. Look at other industries and some operators control upwards of 30 per cent. I could see the CMA giving it approval.’
Steve Young, director of think tank ICDP thinks Constellation’s move is more about financial investments not some plot to create a motor trade giant.
He told Car Dealer: ‘While UK motor retail is relatively unconsolidated compared to say the big food supermarkets or banking, I don’t believe that a super group potentially linking Lookers, Vertu and Marshalls would be acceptable to either the competition authorities or the manufacturers.’
Others in the motor trade are not so sure either. Peter Smyth, director of dealer group Swansway, said he ‘couldn’t see the CMA allowing it’.
Creating a super group would certainly be a bold move, but one that TDR Capital has a history of. This is, after all, the private equity house backing the Issa brothers – the duo that bought up hundreds of petrol stations under the Euro Garages name, and then made an audacious bid for Asda. And won.
Perhaps while all eyes were turned on the likes of Cazoo and Cinch as the disruptors to worry about, TDR Capital and its Constellation Automotive Group were the ones hiding in plain sight.
The one group that won’t take such a super merger lying down will be the car manufacturers.
The likes of Toyota, Kia, Mercedes and Volvo are already said to be annoyed at Constellation muscling in on Marshall Motor Group with some severing ties with the group completely.
Car Dealer revealed that Toyota had apparently insisted Constellation put its sites up for sale with three groups rumoured to be bidding for parts of the portfolio. Constellation and Toyota declined to comment.
‘There will be uproar in car manufacturer boardrooms if Constellation makes a move for Vertu or Lookers,’ said another car dealer boss.
‘I know there are some car manufacturers spitting feathers at the Marshall deal, and they’d be incandescent if TDR went further.
‘But does TDR care? I don’t think they do. If they get big enough they’ll be able to call the shots which is what the manufacturers are worried about the most.’
Swansway’s Peter Smyth agrees: ‘The car manufacturers wouldn’t allow it. It would certainly get their backs up, that’s for sure.
‘There were some that were worried about the Marshall move, but didn’t do anything – I think this would be different.
‘But I don’t think a supergroup is what TDR is planning. I think it’s simply an investment that they think will give them a decent return pretty quickly.
‘They’ll have seen the interest from abroad and will think, like me, that Vertu is an undervalued, well-run business by Robert Forrester, and they’ll be thinking they can get an easy return.’
David Kendrick, partner at UHY Hacker Young, told Car Dealer he thinks TDR’s move is more aimed at influence, not the creation of a supergroup.
He said: ‘My view is that these investments are extremely clever strategic investments to potentially have an influence over movements within the PLC market.
‘I am not of the view that they are looking to take over the UK market and buying all these PLCs to make one huge group – I’m not sure the CMA would allow it, nor the OEMs.’
Meanwhile others have long predicted the rise of supergroups. Former Marshall boss Daksh Gupta told us in the summer of 2020 he thought four or five groups would break away from the pack within three years. If Constellation makes a move, his timings will be bang on.
He said: ‘I think in the next three to five years you might see a number of groups breaking away into that £5bn plus category.
‘Whereas before I thought this might happen over eight to 10 years I now think the emergence of five or six supergroups will happen a lot faster.’
You can watch what he said in the clip below.
Gupta wasn’t alone. Even Vertu Motors boss Robert Forrester predicted the rise of the super group himself in an interview with Car Dealer in May 2021.
He said: ‘Are there going to be mega super groups? Well, I think the direction of travel is probably there. There are some much bigger groups in Europe.
‘We don’t operate in a field where we are completely independent. We have to work with the manufacturers because we operate their franchises. But I think there is more of a mood among the manufacturers that they’d like to have larger groups.’
Perhaps Forrester had already predicted the future. Car Dealer contacted him for comment.
We also contacted Constellation Automotive Group and TDR Capital. Both declined to comment.
Car Dealer Live – the future of the car dealer – exclusive conference features talks from leading car dealers, Google and Auto Trader among much more. Find out the full event details and book tickets.
