Warren Buffetts Berkshire Hathaway Inc. agreedconsented to buy Van Tuyl Group, the largest privately possessed United States car dealer group.
The companyBusiness, with 75 car dealerships at the end of in 2013, will be renamed Berkshire Hathaway Automotive and will certainly continue to be run by Larry Van Tuyl, Berkshire stated today in a statement.
In an interview with CNBC, Buffett said the acquisition would be in the type of an all-cash deal. Terms werent divulged.
I fully anticipate well purchase a lot more dealerships over time, Buffett stated.
Van Tuyl, now based in Phoenix, will move its head office to Dallas, Berkshire stated.
Larry Van Tuyl, CEO of the family company, will be chairman of Berkshire Hathaway Automotive and Jeff Rachor will be CEO.
Weve gone a long period of time without entering cars, however Larrys got an operation that we believe could be scaled up a lot from where it is, Buffett stated on CNBC.
Buffett, 84, has been drawn to businesses that have chances to expand through acquisitions. Such bolt-on purchases allow his deputies to deploy part of Berkshires cash stack, which was more than $55 billion as of June 30, and complimentary his time for larger offers.
Over the last 2 years, the car dealer market has consolidated as business like AutoNation Inc. and Penske Automotive Group Inc. constructed their networks. That trend is poised to continue, stated Tim Lamb, president of Tim Lamb Group LLC, a car dealership brokerage company in Granville, Ohio.
Less people are going to have more rooftops, he stated. Its a really little portion of the dealer body thats possessed by these huge groups. Theres still a whole lot of chance to accumulate.
Van Tuyl operates in states consisting of California, Florida and Texas. The offer is expected to be completed in the first quarter of next year, according to the statement.
Van Tuyls lender is Stephens Inc., and DLA Piper is offering legal advice.
Extremely financially rewarding
The Van Tuyl company design is to run large, high-volume stores in Sun Belt markets, Alan Haig, president of Haig Partners LLC, a dealership brokerage business, said in a phone interview. That is a really lucrative company design because the return on sales increases with higher volume.
Haig estimates that Van Tuyl is valued at more than Group 1 Automotive Inc., which has a market capitalization of $1.8 billion, and less than Penske Automotive, which has a value of $3.7 billion.
AutoNation, the biggest brand-new vehicle seller in the United States, had about double the yearly profits of Van Tuyl in 2013 and is valued at more than $6 billion.
Extending using the Berkshire name will certainly draw in consumers who see the business favorably, Keefe Bruyette amp; Woods experts led by Meyer Shields composed in a note to customers today.
Invite to the business
In regards to new-vehicle retail sales, Van Tuyl ranks behind openly traded Sonic Automotive Inc., Group 1, Penske Automotive, and No. 1 dealer group AutoNation.
I welcome the entry of Warren Buffett and Berkshire Hathaway into auto retail, AutoNation CEO Mike Jackson said in an e-mailed statement this morning.
I have actually met Warren through the Costs Gates company, which is a 15 percent shareholder in AutoNation. Auto retail, as I said earlier today (on CNBC), is very healthy, and we anticipate to see the market offer about 17 million new systems in 2015.
Van Tuyl had 75 dealerships that offered 130,447 brand-new cars in 2013, according to Automotive News study.
On Wall Street, stock prices for United States publicly traded auto groups increased today. AutoNation shares closed up 6 percent, Penske Automotive 2.7 percent, Group 1 3.4 percent, Sonic 2.7 percent, Asbury Automotive Group Inc. 3.6 percent and Lithia Motors Inc. 10 percent. Lithia on Wednesday stated it closed on its acquisition of DCH Auto Group. Utilized automobile giant CarMax Inc. increased 1.6 percent also.
Berkshire Hathaways purchase need to favorably influence auto-retailer shares this morningtoday, Wells Fargo expert David Lim composed in report.
That stated, we are rather surprised by this development as dealership acquisition expenses continue to be raised and industry device sales is roughly 6 percent from the 17.3 million peak (accomplished back in 2000). In addition, OEMs restrict the number of franchises owned by a single dealership group.
Reuters and Automotive News added to this report.