Asbury Automotive Group Inc. U.S. officials say the retailer has cut enough debt from its books to buy dealerships.
Asbury’s CFO Michael Welch told analysts last week that the retailer didn’t plan on new acquisitions until it had reduced its earnings to 2 times. CEO David Holt told Automotive News On Monday that Asbury’s debt ratio is close enough for the dealership group to re-enter the buy-sell market.
The ratio was 2.7 in December 2021, the month in which Asbury’s Larry H. Miller dealerships and LHM’s Total Care auto finance and insurance products provider for $3.48 billion. At the end of June, Asbury took on 2.1 times accrued debt before interest, taxes, depreciation and amortization, once adjusted for the effects of acquisitions and disinvestments.
“We are at the level we want to be at,” Welch said last week.
Hult said Asbury had shed leverage faster than expected.
“We are looking at strategically aligned opportunities for disciplined growth,” Hult said last week.
Welch said Asbury would prioritize the acquisition, although he did not rule out putting the company’s increased financial strength to stock buybacks as well.
But Asbury wouldn’t buy for the size, Holt said. Instead, the dealership group intends to have “quality assets that align with who we are” and will be profitable for the group, he said.
When Asbury announced the Larry H. Miller deal in September, it disclosed a purchase price of $3.2 billion, which was to be financed with approximately $600 million in equity and $2.6 billion in debt. The company’s annual report, released in May, revealed the final cost to be $3.48 billion. The reason for the higher final amount was not clear.
The acquisition of Larry H. Miller and the subsequent debt reduction of the company worked well for Asbury. Hult said Asbury didn’t see many companies for sale during the first half of the year, which prompted executives to depart from its plans for mergers and acquisitions through 2025, or from its leverage strategy. In April Asbury raised its 2025 revenue target by 60 percent to $32 billion. Halt then said that the additional revenue of $6.2 billion would come from buying more stores.
“We’ve just been idle, waiting for the right opportunities for us,” Hult said.
Asbury ended the quarter with $1.01 billion in cash and credit liquidity, up from $805.2 million at the end of the first quarter and $437 million at the end of 2021. The company had $100.1 million in cash, compared to $284.3 million at the end. $178.9 million at the end of the first quarter and last year.
“We are generating strong cash flow,” Holt said.
At the time Asbury bought 61 franchised and used-only stores from Larry H. Miller and Total Care Auto, Larry H. Miller was ranked 8th. Automotive NewsList of top 150 dealership groups located in the US with 61,097 new vehicle sales in 2020. Duluth, Ga. K Asbury was ranked 6th on the list at that time and moved to the 5th position. Automotive NewsLatest inventory, with retail sales of 109,910 new vehicles in 2021.
Asbury sold seven Toyota and Lexus stores in the first half of 2022 to comply with the automaker’s store-count limit. It had 148 new vehicle dealerships comprising 198 franchisees as of Thursday.