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The Banks Report: Lithia Motors Acquires DCH
by Cliff Banks
The Banks Report has learned that Lithia Motors has entered into an agreement to acquire the DCH Automotive Group and is waiting for manufacturer approval.(Update -- Lithia subsequently sent a press release saying the deal has been completed).
Lithia executives are scheduled to be in New Jersey Monday meeting with DCH executives. The deal is expected to close in the fourth quarter of this year.
Lithia will pay $340 million in cash and $22.5 million in stock for DCH. This likely will be the biggest dealership acquisition in the U.S. since January 2002 when the Sonic Automotive Group acquired the 16-dealership Massey Automotive for close to $200 million.
This acquisition will bring the industry total for 2014 to 121 buy-sells. This is the second monster deal to be done in the last couple of weeks -- the David Wilson Automotive Group acquired Fletcher Jones' Las Vegas Toyota store for $75 million at the beginning of June.
DCH has 25 dealerships (DCH’s website says 27 stores, but TBR combines Toyota with Scion for its records) selling 32 brands in California, New Jersey and New York. It’s one of the top 10 dealer groups in the country when ranked by new car sales, and generates an estimated $1.8 billion to $2 billion a year in revenue.
Chairman Shau-wai Lam’s father, B.Y. Lam, began what would become DCH Automotive as a trading company in Shanghai in the 1930’s. A few years later, he established Dah Chong Hong Limited in Hong Kong. He opened an American subsidiary, DCH (USA), in New York in 1948 focusing on importing food and textiles and trading in commodities.
The USA division of DCH moved out of the import and trading business in 1977 to focus on selling cars. Unable to obtain a dealership selling one of the domestic brands, DCH was given an open point by Honda in Paramus NJ, the company’s first dealership.
In 1979, Lam, who at the time was DCH’s youngest executive, was sent to California to open DCH’s second store, Gardena Honda. Within four years, it became the top selling Honda store in the country. Lam was named president in 1988.
Following the parent company’s sale in 1992, Lam’s family and the Wing On Group of Hong Kong acquired DCH acquired DCH.
DCH President George Liang will continue running the company reporting to Bryan DeBoer while Lam will be on Lithia’s board.
In 1996, led by Sid DeBoer, Lithia Motors became the first dealer group to go public with five stores selling 19 different brands.
Not including the DCH acquisition, Lithia has acquired eight dealerships this year – including four in Hawaii – and nine stores in 2013 bringing its total to 101 dealerships operating in 12 states. It’s now the eighth largest group in the country having generated more than $4 billion in total revenue in 2013.
DeBoer’s son, Bryan, took over as president and CEO of Lithia in 2012.
He’s transformed the group from being a centralized corporate-run firm to being a group of decentralized entrepenurial stores. The company has had a great run since 2012. Company shares were trading about $22 a share two years ago. Recently it’s traded as high as $80 and is now hovering in the $78 range.
Not including acquisition costs, the purchase should add $0.12 to $0.14 to earnings per share in 2014. Annually, adding DCH should increase EPS anywhere from $0.65 to $0,75.
The DCH acquisition will add more than $2 billion in annual revenue and will be Lithia’s first foray east of the Mississippi. Once the acquisition is completed, more than 20% of Lithia's revenues will come from the east and DCH's New Jersey and New York stores.
For the most part, the DCH stores matches Lithia’s acquisition strategy , which is to find exclusive domestic and import franchises in midsized markets and exclusive luxury franchises in larger metropolitan markets. The acquisition provides Lithia a foothold in the Los Angeles and New York markets.
Lithia executives are hosting a conference Tuesday morning at 9:00 am to discuss the acquisition with investors.
DCH’s 25 dealerships selling 32 brands
New Jersey Dealerships
New York Dealerships
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Report on 2013 Dealership Acquisitions
The pace of automotive dealership buy/sell activity was moderately brisk in 2013, with 180 dealerships accounting for 260 franchises changing owners in the U.S.
The report, the first of its kind in the industry, provides data and analysis by brand, public and private dealer group acquisition. The report, including a list of all transactions compiled is available in Microsoft Excel to subscribers.