AutoNation Inc. continues to seek out mergers and acquisitions after declining to make an offer for Pendragon late last year. Executives said they are keeping their eye out for acquisitions in the U.S. and abroad.
“We liked what we saw with Pendragon at that price we had indicated in the marketplace, and at that point we thought it was good — but clearly that was not for us,” CEO Mike Manley said during the company’s fourth-quarter earnings call Feb. 13. “I will tell you that we have a number of opportunities at this point in time.”
Manley did not elaborate. AutoNation could not be reached for comment.
AutoNation had submitted an unsolicited proposal late last year for Pendragon, a major United Kingdom retailer with 160 mostly new-vehicle dealerships, a fleet business and dealership management system Pinewood. AutoNation submitted its offer with at least two potential competitors: Lithia Motors Inc., which submitted an initial bid, and a joint unsolicited proposal from Penske Automotive Group and Sweden’s Hedin Mobility Group. AutoNation and Penske/Hedin ultimately declined to make binding offers after Lithia increased its offer to acquire the dealership and fleet business of Pendragon to $481 million, a transaction that closed in October.
AutoNation’s 2023 acquisitions included the purchase of five dealerships in June from Bob Baker Auto Group near San Diego. In August, AutoNation also acquired Aston Martin Summit in New Jersey.
CFO Thomas Szlosek said the company has strong cash reserves, which has been good for both stock buybacks and mergers and acquisitions.
“Moving forward, we’ll continue to allocate capital to maximize shareholder value considering both near-term market conditions, the M&A landscape — particularly for core franchise operations — and long-term direction of the industry,” Szlosek said.
JPMorgan’s Rajat Gupta offered a few clues as to AutoNation’s strategy in a March 3 analyst note based on a recent meeting with Manley and Szlosek.
The company will be pivoting toward more mergers and acquisitions as valuations for franchised dealerships decline and seller expectations reset after gross profit per new vehicle sold decreases edge closer to pre-pandemic levels, Gupta said.
The company is seeking to expand its store network “in growth markets with favorable franchise laws, including in geographies where AutoNation currently has sizeable market density,” the analyst note said. This strategy will help the company build efficiencies based on economies of scale as AutoNation pursues acquisitions in tandem with plans for its AutoNation USA standalone used-car stores, AutoNation Finance, auctions and collision centers, according to the note.
AutoNation management believes having more than five franchised stories in a particular region allows it to open a new AutoNation USA store, Gupta said. When that number of franchised stores reaches 20, that is a good foundation on which to expand collision centers or auction operations, Gupta said, citing management perspective.