Top five AM100 group Lookers has acquired Benfield Motor Group and its 30 dealerships for £87.5 million in cash.
The acquisition boosts Lookers’ presence in the North East of the UK and is expected to be immediately earnings enhancing for the group.
The acquisition may also push Lookers into the top three largest dealer groups in the UK ahead of Arnold Clark Automobiles.
Andy Bruce, Lookers' chief executive, said: "A key attraction for us is the cultural fit.
"Both Lookers and Benfield share an approach which puts employees and customers at the heart of our business and this acquisition will ensure that continues.
“We are committed to preserving and nurturing this culture as well as putting in place new initiatives which allows Benfield to benefit from our larger scale and leverage the investments we have made.
"The acquisition also strengthens our relationship with a number of our key manufacturer partners and gives us a truly national footprint by adding to our presence in the North East of the UK.”
Lookers has history with Benfield, as its current motor division managing director, Nigel McMinn, was previously chief executive at the North East group, before heading to Lookers.
Benfield was founded in Newcastle in 1957 by the Squire and is one of the UK's largest private motor retailing companies, headed by Mark Squires.
Benfield has 1,600 employees working in dealership locations across the North of England and Scotland.
Benfield's franchises include Audi, Volkswagen, VW Commercial Vehicles, Skoda, Ford, Toyota, Lexus, Hyundai, Kia, Renault, Dacia, Nissan and Honda.
The acquisition is being funded using new banking facilities made available to Lookers by Bank of Ireland, Barclays Bank, HSBC Bank, Lloyds Bank, Royal Bank of Scotland and Yorkshire Bank.
The statutory accounts for Benfield for the year ended 31 December, 2014 reported revenue of £699.7m and profit before tax of £7m. The company had gross assets of £154.6m and net assets of £55m.
The acquired centres will be rebranded as Lookers.
Analysts at stockbroker Zeus Capital issued a note this morning stating: "We believe this is a good transaction as it provides more scale to the group with many of its brand partners, management know this business extremely well, and we can see how Lookers can generate a ROCE of c15% from this transaction over time.
"The upshot is that this should enhance 2016E EPS by more than 10%, which puts the stock on less than 10x P/E to December 2016. We are comfortable with 2015 net debt/EBITDA rising towards 1.5x at peak levels, and expect this to steadily fall as the EPS enhancement kicks in. Overall, we are supportive of this transaction."
"We think it’s possible for management to generate £12.5m of PBT from this business on a normalised basis, and with modest synergies this target should be hit in the next 2-3 years in our view."
Goodwill paid on the transaction was £33m, Zeus said.