Spike in UK car dealerships being snapped up as British firms go cheap
UK car dealerships are increasingly being snapped up by overseas investors on the cheap amid a surge in dealmaking in the sector.
There were around 20 overseas investments into UK dealer groups in the decade prior to 2019, while the three years post-Covid have already seen 10 transactions, with several set to be completed this year, according to research from consultancy EY.
A weakened pound has made British firms attractive takeover targets, EY said.
US car dealership Lithia Motors bought British Luxury car dealer Jardine Motors as part of a £300m deal earlier this year, while Lookers, one of the UK’s biggest car dealers, looks set to be taken over by Canada’s Alpha Auto Group.
Charlie Simpson and Edwin Kemp, partner and director at EY-Parthenon, said the spike in activity has happened “despite a backdrop of geopolitical disruption, the highest cost of capital in key geographies for more than 15 years and general macroeconomic challenges.”
Along with a weakened pound and hurdles for domestic deals, they argue that newer, often online-focused retailers in the space are increasingly “international in nature,” and as a result, “dealer groups may thus believe they also need international footprints to compete.”
Taj Lalli, UK automotive M&A director at KPMG, added that UK dealerships are “well run and operate in a well regulated environment, which adds to the stability that investors look for when executing their M&A strategies.”
“UK car dealerships have consistently represented good investment value and it’s little surprise to see international ownership interest in them – only fuelled further by some currencies making gains on the pound.”
Experts in the sector believe that the upward trend in overseas investment is likely to continue in the coming years.
A collision between pent-up demand post pandemic and unprecedented inflation in the price of new and second hand vehicles has seen some of the biggest UK car dealers rake in bumper profits since Covid.
Ian Plummer, Auto Trader’s commercial director, said that UK franchise retailers have become “attractive propositions” for foreign investors due to their profitability, while many were adapting well to shifts in consumer spending habits.
“Many have successfully future proofed themselves by evolving traditional sales processes to meet changing car buying behaviours, blending convenient digital solutions with in-store physical experiences, he said.
“Combined with the strong dollar… I’ve no doubt we’ll see further consolidation as larger groups look for greater efficiency and reach,” he added.
This was echoed by Tom Leathes, co-founder of the used-car marketplace Motorway, who told City A.M.: “I think we’re going to start to see more sophisticated players than we’ve seen over the past 50 years where there had been very little change.”
“I reckon that we’re going to start to see more international interest in the market in the UK… because of its size, its complexity and the opportunities that exist here.”