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What makes UK dealer groups so attractive to US investors? We ask industry experts for their take

  • We ask what makes UK dealer groups so attractive to investors from North America
  • Operational strength, a good exchange rate and competitive pricing all given as reasons
  • Experts say its only a matter of time before we see more US dealer groups enter the UK market

Time 8:34 am, April 19, 2024

A good exchange rate, competitive pricing and operational strength are just some of the things attracting US investors to UK dealer groups.

That is according to industry experts, who say that cash-rich North American groups are set to continue ploughing money into Britain’s most successful car dealers.

Car Dealer reported earlier this week that Inchcape is to sell its UK retail operations to US giant Group 1 Automotive for a staggering £346m.

The move followed reports that fellow American outfit AutoNation was also interested in buying the dealerships.

It is expected that the sale will be completed before the end of Q3, following in the footsteps of the sales of Lookers to Canada’s Global Auto Holdings and Pendragon to Lithia.

Meanwhile, Vertu Motors has also been described as a ‘sitting duck’ with experts tipping the business to attract money from North America.

But what is it which makes British car dealers such an appealing investment opportunity?

Industry experts have told Car Dealer that money making machines like Lookers and Pendragon represent a ‘no brainer’ to Americans with deep pockets.

‘The US market has been tracking the UK market for a long time now and it’s no surprise we see more and more interest in acquiring groups in the UK,’ said David Kendrick, chief executive and corporate finance partner of chartered accountants UHY Hacker Young.

‘The exchange rate is beneficial, deal multiples are heavily suppressed vs the US deals they see out there and real estate in the UK is typically a very good investment long term.

‘For all these reasons the US businesses see great value in the UK and assuming they have the bandwidth and team, is almost a no brainer.’

The exchange rate was also flagged up as a major reason for the recent US shopping spree by Steve Young, CEO of international research and consulting outfit, ICDP.

Young also pointed to the fact that red tape is beginning to limit how much money dealer groups can make in the USA.

He told Car Dealer: ‘The big US groups are actually quite focused on certain parts of the US rather than a truly national approach, and in those areas of interest they are starting to run up against manufacturer limits on the degree of concentration of investors.

‘As they are still looking for growth, particularly the public groups, they need to look outside of the US, and the UK is then attractive because of the existence of large groups – in our European Top 50 ranking last year, a quarter were UK-based.

‘There is also attractive pricing relative to what US groups are selling for helped by the exchange rate currently, the operational strength of the UK groups – amongst the best auto retailers globally in my view – and a relatively familiar culture and language.’

‘We will see more new entrants over the coming months and years’

Since Lookers was taken over by AlphaAuto, the firm has largely found itself in the headlines for all the wrong reasons.

At the end of last year, the firm announced hundreds of redundancies with staff left fuming at their treatment from the new owners, with Christmas parties cancelled at the last minute as a result of cuts.

There have also recently been questions about whether the deal could fall foul of Takeover Panel rules after the wave of redundancies.

Earlier this month Car Dealer reported that the firm’s CEO Duncan McPhee is quitting the outfit after three years in top role

Young says that the fallout from that deal highlights the importance of US dealers having ‘strong management’ in the UK.

He told Car Dealer: ‘You can’t manage a UK group from the US, so it’s key that any acquisition already has strong management.

‘As a US acquirer does not result in any further consolidation internally in the UK, it does not cause the same concerns to the manufacturers as would be the case for one UK group acquiring another.

‘These comments do not apply to the AlphaAuto acquisition of Lookers which does not fit this mould.

‘The nature of that business is very different, and I think we could still see some fallout from that deal, much as happened when Constellation acquired Marshall.’

Kendrick meanwhile, believes that it is only a matter of time before the UK’s motor trade sees more investment from the other side of the Atlantic.

He added: ‘I have no doubt we will see more new entrants over the coming months and years.’

Jack Williams's avatar

Jack joined the Car Dealer team in 2021 as a staff writer. He previously worked as a national newspaper journalist for BNPS Press Agency. He has provided news and motoring stories for a number of national publications including The Sun, The Times and The Daily Mirror.

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