AutoCanada Inc. has agreed to buy nine of the 10 dealerships in Grossinger Auto Group of Chicago, establishing its presence in the lucrative U.S. auto retail market -- with plans for more growth.
The deal, which is scheduled to close April 9, will add $400 million (U.S.) in annual revenue to AutoCanada and is one of the largest acquisitions by an international buyer of a U.S. dealership group.
"This is a pivotal move for AutoCanada as this U.S. acquisition broadens our geographical reach and brand diversification through adding a combination of domestic, import and luxury dealerships to our portfolio," AutoCanada CEO Steven Landry said in a statement. "This is exactly the kind of acquisition that will be instrumental to accelerating our growth. It is a well-established business that is immediately accretive to our earnings and brings new valuable OEM relationships."
AutoCanada, of Edmonton, Alberta, operates 54 dealerships in Canada, according to its website. It reported more than $2.3 billion in annual revenue last year and is the only publicly traded dealership group in Canada.
"It's an opportunity for AutoCanada to expand the brand set, as well as a chance to start growing in a much bigger market," said Ryan Kerrigan, managing director of buy-sell advisory firm Kerrigan Advisors in Irvine, Calif.
Kerrigan represented the Grossinger group in the deal. It came together after months of private conversations with AutoCanda's leaders, who'd expressed an interest in buying dealerships in the U.S.
"When this sale came up, we thought it'd be a good fit for their foray into the U.S.," Kerrigan told Automotive News.
From there the deal took nine months to complete, given some extra administrative hurdles involved in an international transaction, Kerrigan said.
With a foothold now in the U.S., AutoCanada can raise "substantial assets" to buy more dealerships in the U.S., Kerrigan said.
"They're certainly looking at that," Kerrigan said. "They will be actively evaluating opportunities in the U.S."
AutoCanada executives have said they have expansion goals for the next five years that include a better balance of brands and a stronger coast-to-coast presence in Canada.
Meanwhile, "There are fewer sellers in Canada than there are buyers," Erin Kerrigan, a managing director of Kerrigan Advisors, told the Automotive News Canada Congress in February.
Canadian sellers should expect more interest from American buyers taking advantage of the stronger U.S. dollar, she said. However, lower prices for U.S. dealerships have Canadian groups looking south, said Kerrigan, who at the time was working on two U.S. sales to Canadian buyers.
In a March conference call to investors, Landry said AutoCanada was seeking to expand into new markets, calling its acquisition pipeline "quite strong."
When asked by an analyst if "five or six" acquisitions were possible in 2018, Landry said "absolutely," due in part to the company's financial strength.
"Our pipeline is indeed pretty thick," Landry said. "I think in 2018, we'll certainly be in our growth and expansion mode now that our fundamentals and foundation are where we want them to be."
The company reported net income of $13.3 million in the fourth quarter of 2017, a year-over-year gain of 24 percent. Revenue rose 17 percent to $570 million, while same-store sales jumped 11 percent.
Landry said AutoCanada was looking to continue expanding its presence outside of its traditional stronghold in western Canada, while adding to its portfolio of luxury and Asian brands.
Grossinger Auto Group is a 90-year-old company founded by Sam Grossinger in 1928. It grew be one of the best-selling dealership groups in the U.S., and in 2015 ranked No. 95 on Automotive News' list of the Top 150 Dealership Groups based on new-vehicle retail volume.
AutoCanada said it is buying nine of the dealerships, which represent 12 brands: Toyota, Chevrolet, Cadillac, Honda, Hyundai, Kia, Mercedes-Benz, Audi, Subaru, Volkswagen, Volvo and Lincoln.
Three of the stores are in Chicago, three are in the Chicago suburb of Lincolnwood, Ill., two are in Palatine, Ill., and one store is in Normal, Ill., a college town about midway between Chicago and St. Louis.
Grossinger's Buick-GMC-Cadillac dealership in Lincolnwood was sold separately to Zeigler Automotive Group of Kalamazoo, Mich. It is called Zeigler Buick-GMC-Cadillac Lincolnwood.
The acquisition gives AutoCanada its first Toyota, Honda, Lincoln and Volvo stores, which Landry said is key to the company’s goal of diversifying product offerings and geographic footprint.
“While establishing a new relationship with these OEMs in the U.S., it does not necessarily open up doors or change our relationship in Canada,” Landry said on Thursday during a call with investors. “It’s two different countries and they operate independently, as they should. Nonetheless, we welcome the opportunity to continue to have dialogue, which is always strong.”
Landry said the acquisition was not done to put pressure on the companies to change their policies in Canada that prohibit a publicly-held company from owning a dealership. Still, he said the deal could bolster AutoCanada’s case should it eventually aim to buy a Toyota, Honda or Ford store in Canada.
“At the very least, because we have a reputation and a success rate of taking average stores and making them better, if we can prove to Honda, Toyota and Ford that we would improve these dealerships, that would be a great thing on our resume,” Landry said in an interview with Automotive News Canada.
Landry said AutoCanada will continue to pursue acquisitions in Canada and in the United States in the coming months.
“We entertained other American opportunities, but none of them bubbled up like this one in terms of being close to Canada, similar market, culture, feel and seasonality, if you will,” Landry said.
Landry said any future acquisitions in the U.S. would likely be close to the Canadian border and would be paid for by earnings it generates from the Grossinger stores.
“The important thing for us was to do an acquisition that was sizeable enough that this dealership group would have its own earnings, and that those earnings would stay in the U.S. and would be used to purchase more stores in the U.S.,” Landry said in an interview with Automotive News Canada. “It's really about biting the bullet and getting in here once and growing.”
He said the company plans on retaining the Chicagoland stores’ general managers and having Americans run the operations.
The acquisition is expected to close in the second quarter.
Succession factor
The Grossinger family opted to sell largely for succession reasons, Kerrigan said.
"The Grossingers had been in the business for three generations," Kerrigan said. "As they looked ahead to the fourth generation, they didn't see it continuing the family legacy and thought it was the right time to sell."
Caroline Grossinger, co-president of Grossinger Auto Group, said it was a "heartfelt and bittersweet" decision to sell. Grossinger wanted to ensure a buyer was "aligned with our priorities of providing employees security, continuity of our community relationships, and our focus on customer experience," she said in a media statement. "We were able to find such a group with AutoCanada."
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