Morningstar

Lithia Finally Enters the U.K. With Large Jardine Acquisition

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Securities In This Article
Lithia Motors Inc Class A
(LAD)

We are not changing our Lithia Motors LAD fair value estimate after the company announced the acquisition of U.K. dealer Jardine Motors Group. Terms were not disclosed and Lithia CEO Bryan DeBoer in an Automotive News interview said the deal was on more favorable terms than U.S. acquisitions. We estimate the price at between $400 million to $500 million and Lithia said the deal was financed from existing balance sheet capacity (that is cash and credit lines).

Jardine has over 50 stores solely selling premium luxury brands such as Aston Martin, Audi, BMW, Ferrari, McLaren, Mercedes, and Porsche and is the 23rd largest European dealer group per Automotive News. Lithia said the deal will generate over $2 billion in annualized revenue, and we are modeling the company acquiring $4 billion in annual revenue in 2023. We will wait for first-quarter earnings to see if management updates its plan given on Feb. 15 of up to $4 billion acquired revenue for 2023, but additional funds for acquisitions will likely mostly, if not entirely, be offset by the time value of money adjustment in our model. DeBoer also said Jardine CEO Neil Williamson will stay on with Lithia and that Williamson wanted to pursue growth while Jardine’s parent company, Hong Kong-based Jardine Matheson, was looking to divest. Lithia’s aggressive 2025 growth plan to reach $50 billion in revenue ($28.2 billion in 2022) makes the two entities a natural fit.

We like the deal and the wealthy customer brand mix it brings, plus it signals to other sellers that Lithia is serious about the U.K. It’s no secret that Lithia was looking to enter the U.K., as management has talked for years about foreign expansion into English-speaking countries (Lithia entered Canada in 2021) and Sky News last summer said the firm tried to buy Pendragon, the seventh largest European dealer. We expect the U.S. to remain the main acquisition focus, but we expect more U.K. deals over time and perhaps into continental Europe, as Penske has done.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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