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EMH dilemma: acquire sites or sell the group

European Motor Holdings (EMH) appears poised for acquisition in 2007 after retaining investment bank Goldman Sachs to “review strategic options”.

Man Financial, which has taken a 4.45% stake in the company, operates globally to facilitate investments, sales and purchases. It must either see a bid for EMH as likely or be instrumental in making one happen.

A motor industry consultant says: “EMH is a clear acquisition target after a period of rapid growth while providing a good return on sales and capital.

“By hiring Goldman Sachs, the group can have control over its own destiny, rather than waiting for Pendragon or another group to launch a hostile bid. Goldman Sachs will be looking for a share in the proceeds from a sale, as well as charging a fee for its review.”

The consultant says EMH, which has been dogged for years by rumours that it is up for sale, might be attractive to an overseas company looking to enter UK motor retailing. EMH is also the sole UK distributor for Perodua, a more attractive prospect since the launch of the Myvi.

EMH announced Goldman Sachs’ involvement alongside its first-half results to August 31, which showed a pre-tax profit of £10.2m (up 42% from £7.2m in 2005), and turnover 27% higher at £428.

Earnings per share of 12.9p were 24% higher, excluding exceptionals, and gearing ratio was 12%, compared with 44% the previous year.

Return on sales within motor retail was 3.1% and aftersales generated more than 50% of the division’s trading profit.

The SKF group, acquired on July 1, 2005, contributed a pre-tax profit of £2.3m. “This acquisition has been a great success and the group has been integrated ahead of schedule,” says Richard Palmer, EMH chief executive.

EMH was right to focus on premium brands, he says, because their registrations increased against a 3.5% overall market decline between January and September.

“Margins remained under pressure for the period under review as a result of general oversupply, but we have improved our profitability,” says Palmer. “When certain of our key manufacturer partners achieve a better balance of supply and demand, we will be in an excellent position to capitalize.”

A Land Rover dealership acquired at St Helens, Lancs, in June will be relocated to Liverpool. This, with outlets in Preston and Chester and a new Land Rover site in Warrington due to open in 2007, will form a market area.

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