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Dealer group acquisition activity at 'highest level for more than a decade' - and set to continue

Knight Frank Automotive Capital Markets 2016-17 report cover

The franchised dealer market has seen the highest level of acquisition activity for more than a decade in the last 12 months.

And merger and acquisition activity is set to continue “at a pace” in the next 12 – 24 months, according to a report from property agent Knight Frank Automotive, ‘Automotive Capital Markets 2016/17’.

Sale and leaseback of property is likely to become a more attractive option.

“One measure of the health of the UK automotive market is the level of business to business transactions. We calculate there has been over £500 million of corporate acquisition activity making it the most active 12 months for over a decade,” the report says citing the deals made by Lookers, Group 1 and Marshalls.

Largest corporate acquisitions in the last 12 months
Purchaser Vendor Reported price
Marshall Motor Holdings Ridgeway Group £106.9m
Lookers Benfield Motor Group £87.5m
Lookers Drayton Group

£55.4m

Lookers Knights Group £27.2m
Vertu Motors Greenoaks £21.9m
Vertu Motors Gordon Lamb £18.7m
Group 1 Automotive Spire Automotive Undisclosed
Jardine Motors Group Colliers Motor Group Undisclosed
Sytner Group Clare James Automotive Undisclosed
Lei Shing Hong Mercedes-Benz Retail Undisclosed

Source: Knight Frank Automotive

Knight Frank says the trend will continue as profit margins for smaller groups are squeezed as manufacturers’ corporate identity demands lead to the need for regular capital investment in dealerships – or relocations and new builds.

“This trend has been  - and will continue to be – a major appeal to investors who have benefitted from significant covenant windfalls and overnight enhancement in capital values, as smaller regional covenants are acquired by major corporate entitites.”

Knight Frank says the shortage of prime investment stock, together with heightened investor understanding and demand has “some major automotive retailers actively undertaking or appraising sale and leaseback”.

“Afterall, the prime stock already held by the funds is rarely traded, as it is difficult to replace; so as any ‘new’ stock is likely to come from sale and leaseback on new developments or existing modern facilities and in some cases lease restructuring on prime investments.”

Plus, for dealer groups, M&A activity “can quickly tip the scales” in favour of freehold assets with sale and leaseback able to address the imbalance “whilst also releasing capital to invest in or upgrade the facilities or finance further acquisitions”.

Knight Frank forecasts the average dealership rents will grow 4-5% per annum for the next three years, compared to 2.53% across all property types.

Prime automotive rents (£ per sq ft)

Prime automotive rents Knight Frank Automotive 2016

 

 

 

 

 

 

 

 

 

 

 

 

Source: Knight Frank Automotive

It estimates approximately 75% of franchised dealers are held freehold, the remainder leased.

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