As major automobile manufacturers face losses, and selling cars online is no longer a turbo-charged concept with consumers, the IPO market is about to get a profitable entrant from the automobile retail sector.
Asbury Automotive Group Inc., a portfolio company of Ripplewood Holdings LLC, hopes to become the first car dealership chain in four years to successfully pull off an IPO. The company enlisted IPO strong horses Goldman Sachs and Merrill Lynch to jointly manage the $150 million deal. Ticker symbol and share amounts have not been announced yet, although Asbury plans to trade on the New York Stock Exchange.
If the Asbury deal does get completed, it will be the first auto dealership IPO since Group 1 Automotive Inc. and Sonic Automotive Inc. went public in late 1997. First America Automotive attempted to go public in 1999, but withdrew its deal, citing market conditions and an acquisition by another company.
Formed in 1995 by Asbury’s management and private investment firm Ripplewood Holdings, Asbury has 126 franchises and 86 dealerships across nine states, primarily in the South and Midwest. Asbury began acquiring dealerships in 1997, and now controls nine automobile dealership groups, divided by region. It is estimated that Ripplewood will retain 85% of the company following the IPO.
“It’s Ripplewood’s goal with Asbury to build Asbury into the leading automotive retailer in the country and be in the top tier of automotive retailers,” said David Lilly, a spokesman for Ripplewood.
The filing of a brick-and-mortar car dealership signifies just how far back to status quo the broad retail industry has come. While Internet automobile retailers AutoTrader.com and CarsDirect.com are still in operation, grand plans for their IPOs came crashing down in the 2000 technology collapse, and they never made it to market.
Lilly said he believes the threat of online retailers siphoning business from dealerships has diminished, coupled with the fact that dealerships can continue to turn a profit, despite the cyclical nature of the manufacturers, makes it a perfect time to take Asbury public.
“There are a lot of revenue sources in a car dealership beyond simply car sales. They refute the concerns the market had about cyclicality,” he said. “Last year the Internet was perceived as a major threat to car dealerships. And that threat has been successfully refuted. The car dealerships are still doing well.”
Asbury is a growing company, having sold 154,422 new and used cars in 2000, up from 116,790 in 1999. It posted profits of $28 million in 2000 from $4.03 billion in revenue, up from a net of $3 million, from revenue of $1.08 billion, the year before. Proceeds from the IPO will be used to pay down a $550 million credit facility that was used to fund Asbury’s various acquisitions.
“We think going public now, particularly when a number of these myths have been refuted, will allow us to establish a public record,” Lilly added.
The company plans to expand by establishing platforms in new markets through acquisitions of large and profitable dealerships, as well as adding dealerships to its already established markets. However, the company has reached its franchise limit with Acura, and is close to reaching its ceiling with Toyota and Jaguar. As the dealer expands, it may need to renegotiate these ceiling deals, though unsuccessful results could hinder its expansion efforts.
Strong management is a heavy presence in the offering. President and CEO Brian Kendrick has 20 years of experience in retail, formerly serving as vice chair and chief operating officer of Saks Holdings Inc., the parent of the upscale department store of the same name. And Co-founder and Chairman Thomas Gibson has 28 years experience in automotive retail.
With consolidation sweeping through the automotive dealership industry as it has much of the business world, Lilly claimed that Asbury has a “winning approach” to consolidation and that “by doing an IPO we feel that we can get out there and tell our story.”