Asbury Automotive Group, Inc. (NYSE: ABG), one of the largest automotive retail and service companies in the U.S., entered into a definitive agreement to acquire certain assets of Park Place Dealerships, one of the country's largest and most prominent luxury dealer groups, for $1 billion in an all-cash transaction, excluding vehicle inventory.
"Park Place is highly regarded as one of the best and most efficient operators of luxury stores in the industry," said David Hult, Asbury's President and Chief Executive Officer. "Their portfolio of stores comes with a strong base of loyal clients and 2,100 long-term team members throughout the high growth Dallas/Fort Worth market. We are also excited to grow our presence in Austin, Texas with a Jaguar/Land Rover open point, which is another high growth luxury market. This acquisition will transform our total portfolio to 50% luxury stores and add approximately $2 billion in expected annualized revenues."
Park Place has a unique portfolio of high volume, award winning luxury dealerships with premier real estate. Three stores are ranked among the top 10 stores in volume in the country amongst their franchise: Mercedes-Benz, Porsche, and Bentley. In addition, the Jaguar/Land Rover store and both Lexus stores are ranked in the top 15, and the Volvo store is ranked in the top 20.
This transaction will increase Asbury's geographic mix to 36% of revenue derived from the Texas market, and it will transform our overall portfolio to approximately 50% of revenue derived from luxury brands. The luxury segment has historically delivered strong and stable margins that are significantly above those achieved by mid-line import and domestic brands. Luxury stores tend to be more resilient in downturns, and they tend to have higher and more stable margins, fewer dealers nationwide, and a higher portion of gross profit from parts and service.
Park Place has a highly attractive mix of large dealerships with revenue comprised of 38% Mercedes-Benz, 32% Lexus, 11% Jaguar/Land Rover, 7% Porsche, 4% Volvo, and 8% other premier luxury brands.
The operating assets acquired include 17 new vehicle franchises, 15 of which are located in the attractive Dallas/Fort Worth market: 3 Mercedes-Benz, 2 Lexus, 2 Jaguar, 2 Land Rover, 1 Porsche, 1 Volvo, 1 Bentley, 1 Rolls Royce, 1 McLaren, 1 Maserati, 1 Karma, and 1 Sprinter. Included in the 17 franchises is a Jaguar/Land Rover open point in Austin, Texas that is expected to open late in the first quarter of 2020.
Financial Impact
The purchase price includes $785 million of goodwill, approximately $215 million for real estate and leasehold improvements, and approximately $30 million for parts and fixed assets. The transaction is expected to close in the first quarter of 2020, and is subject to customary closing conditions.
We expect to achieve significant synergies over the next three years through combining Park Place with Asbury. The purchase price reflects a 10x multiple on approximately $100 million of EBITDA, including expected run-rate synergies of at least $20 million. These synergies are expected to be realized over the next three years, with incremental profit coming from the Jaguar/Land Rover open point. In addition, we expect $11 million in annual cash tax savings from goodwill amortization with a present value of approximately $90 million. In all, we believe the returns on this investment well exceed our cost of capital and should deliver substantial value to our shareholders.
The acquisition of Park Place, assuming a closing date of March 31, 2020, is expected to be accretive to 2020 earnings per share by approximately $1.00 to 1.25, excluding the impact of transaction costs. Asbury also expects to incur pre-tax costs associated with the transaction of approximately $0.05 to $0.10 per share in the fourth quarter of 2019.
This transaction is expected to be funded through a combination of Asbury's existing credit facilities, cash flow from operations, and committed financing arrangements. Asbury has secured committed financing, which it expects to replace with permanent financing prior to closing. Although the transaction is expected to initially take us above our targeted leverage range, we believe that given the accretive nature of the deal, the strength of our business, and the combined free cash flow generation, we can maintain a solid credit profile and deleverage to under 3.0x by 2022.
BofA Securities served as financial advisor to Asbury Automotive Group and is providing committed financing for the transaction; Hill Ward Henderson and Jones Day acted as legal counsel to Asbury Automotive Group. The Presidio Group served as financial advisor to Park Place Dealerships and Locke Lord acted as legal counsel to Park Place Dealerships.
About Asbury Automotive Group, Inc.
Asbury Automotive Group, Inc. ("Asbury"), a Fortune 500 company headquartered in Duluth, GA, is one of the largest automotive retailers in the U.S. Asbury currently operates 88 dealerships, consisting of 107 franchises, representing 31 domestic and foreign brands of vehicles. Asbury also operates 25 collision repair centers. Asbury offers customers an extensive range of automotive products and services, including new and used vehicle sales and related financing and insurance, vehicle maintenance and repair services, replacement parts and service contracts.
