09.12.2013 | AVAG Holding seeks peer buys to expand operations, board member says

AVAG Holding SE, a Germany-based auto dealership group, seeks acquisitions of peers to expand or consolidate its market position, said Albert Christian Still, board member.

The company would be interested in players focused on Opel, one of its core brands, but also other brands as it is seeking to add to its portfolio, the executive told this news service on the sidelines of a recent Adam Smith’s AutoRetail Forum in Moscow.

Most often, AVAG is approached by dealership owners seeking to be taken over, but AVAG also approaches targets directly, Still said. Management will prioritize players with strong brand portfolios, industry expertise, and other market competencies, or in leading market positions to boost AVAG’s presence or its offering portfolio, he added.

M&A focus will be on current markets of operation, which aside from Germany also include Croatia, Poland, Hungary, and Austria. However, the group could also look at “opportunistic deals” with the right credentials outside these geographies. The executive declined to specify such countries, but with reference to Russia he noted, “at the moment, I can say that our group has not thought about Russia in this context.”

Germany auto dealership industry consolidating

There are several opportunities to acquire small and medium-sized auto dealers in Germany, according to Thomas Laible, a sector expert and partner at German M&A boutique Transfer Partners.

The German auto dealership sector is experiencing consolidation, with the 20 largest companies increasing their market shares and smaller players facing a challenging environment, the expert said. The negative market trend, evident in the 2.9% decline in auto sales so far in 2013, is expected to accelerate the consolidation trend in the next few years, with both acquisitions and insolvency filings likely to increase, he said.

The five largest players in Germany are AVAG, Emil Frey Gruppe Deutschland, Gottfried Schultz, Wellergruppe and Feser, Graf & Co. Automobil Holding, whose gross annual revenues range between EUR 755m and EUR 1.2bn, according to a review of the country's top 100 car dealers by Instituts fuer Automobilwirtschaft, using data from 2010.

According to another sector study from 2013, the number of car dealers in Germany decreased in 2012 to 7,880 from 7,950 the year before, and is expected to sink further to 4,500 by 2020.

Several companies with less than EUR 50m in revenues are facing a difficult market situation and would consider being part of a larger group attractive, Laible said. Dealers of strong local brands, such as Audi, BMW, Mercedes Benz, often perform better than those offering other brands, such as foreign ones, he noted without naming any potential targets.

Laible pointed to the 2010 sector rating, which featured medium-size companies such as Auto-Schubert Gießen (turnover of EUR 49m), Autohaus Weiland (EUR 43m), and MKM Huber (EUR 37m).

To evaluate a car dealer’s operations, several factors have to be taken into account, including location, the relationship between dealer and original equipment manufacturer (OEM), the proportion of old and new cars in a portfolio, and the importance of the service unit, Laible said.

He suggested EBIT multiples between 3x and 5x as a possible basis for transactions. Large players benefit from better business conditions with OEMs, have economies of scale, and can optimize costs and efficiencies among the different locations, the expert noted.

Past M&A experience, funding and advisory roles AVAG has a rich history of using M&A to grow its businesses and services. Recent acquisitions include Ford dealership companies in Germany and Austria in September, Still noted.

This experience could be handy in case of new deals, as AVAG traditionally handles both advisory and funding for its acquisitions in-house, and will do so in future deals, the executive added. In terms of sources of funding, the group would exclusively use its in-house resources to bankroll potential acquisitions. Its turnover in 2012 stood at EUR 1.3bn, generated by more than 3,200 employees, he noted.

The business is family owned and is consequently not considering any divestments or listing opportunities to raise capital, according to the executive.
The parent management and finance holding company managed from the head office in Augsburg currently owns 24 German and 11 foreign trading companies at 97 locations. The intermediate holding companies, which are subdivided by manufacturer and region, coordinate the trading activities, according to company data.

by Christopher Kenneth in Moscow and Laura Larghi in Munich