Pendragon, the UK's largest retail group, has tabled a £230m recommended offer for its closest rival, CD Bramall.

The move, which will create Europe's largest retail group with 220 outlets and turnover exceeding £3.5bn, surprised analysts who were expecting the bidder to be a financial institution. CD Bramall chairman Tony Bramall is recommending the offer to shareholders, which is worth 600p per share. It's the second time he has built up and sold a retail group after selling the original CD Bramall to Avis in 1987.

The two groups are a good fit geographically and franchise-wise. The scale of the new business will give Pendragon the chance to exploit synergies and economies of scale. It will also have greater influence with carmakers when negotiating pricing and trading terms.

“This is an earning enhancing acquisition for Pendragon,” says Piers Trenear-Thomas, consultant at Grant Thornton Motor Retail.

Pendragon has been stockpiling cash for the past year after a period of rapid growth in the late 1990s, which saw it, briefly, exceed £2bn turnover. That milestone will be obliterated by this latest development, which doubles its share of the new car market to around 7-8%. Analysts are watching with interest the other billion-pound turnover groups, in particular Reg Vardy, which has taken a progressive policy towards its expansion. Chairman Sir Peter Vardy might now consider stepping up his growth plans to keep up with Pendragon.

“Dealers need the economies of purchasing with carmakers now,” adds Trenear-Thomas.