Lookers board recommends £465.4m takeover bid from Global Auto Holdings

Lookers’ chief executive and interim chairman are recommending a £465.4 million takeover bid by Global Auto Holdings, a sister company of Canada's Alpha Auto Group Holdings (AAG).

Mark Raban, Lookers chief executive said the offer would create a business of greater scale to create a platform for future growth in the UK.

He said: "Today’s offer reflects the transformational progress that has been made in recent years.

"We have harnessed our strong market position, enhanced our brand relationships, and executed well against our strategic priorities."

Paul Van der Burgh, interim chairman of Lookers, said the business had spent considerable time reviewing the potential impact of AAG’s ownership.

He said Lookers' has made "significant financial and operational progress in recent years: "We’re confident that the commitments given by AAG will protect stakeholder interests. 

“AAG has clearly outlined its commitment to  continue supporting our customers, operations, communities, and most importantly our  talented and committed people.”

The executive team at Lookers is expected to stay in place.

Investing in facilities and the agency model transition

AAG has 15 large scale dealership operations across Canada and the US and said its potential acquisition of Lookers is part of its plans to become a global automotive retailer.

AAG said it recognises the strength and importance of Lookers’ relationships with its OEM partners and it expects to build on these, allowing partners to benefit from AAG's "desire and capacity to invest in its facilities, be a proactive partner with respect to changes in the operating model (including the transition agency models by several OEMs) and to be a willing acquirer to grow its dealership site base to help its OEM partners achieve their respective goals".

Kuldeep Billan, founder and executive chairman of AAG, said: “The proposed acquisition of Lookers represents a compelling opportunity to acquire  one of the leading UK auto retail groups while partnering with fantastic OEM brands  and Lookers’ approximately 6,500 strong team members.

“We look forward to further  building upon Lookers’ strong original equipment manufacturer (OEM) relationships by being a trusted and reliable retail  partner while delivering strong volumes and a high level of customer experience across  a range of OEM ‘go to market’ strategies.

“With the UK auto retail market undergoing  substantial change, including the adoption of new distribution models, we believe that  the wider group is well positioned to navigate the current environment with  geographically diversified operations and a focus on operational excellence.”

Billan said AAG would benefit from the continuity of Lookers’ executive team and that his company is “deeply committed to the UK and look forward to further establishing our presence in the market over the long term”.

Lookers' 2022 financial results performance saw the AM100 group’s underlying pre-tax profits declined 8.2% to £82.7m (2021: £90.1m) in the trading period to December 31, 2022. Turnover rose 6.2% to £4.3 billion (2021: £4.05bn).

That PBT performance represented 3% growth, however, with the exclusion of the £9.8m of UK government COVID-19 support received during 2021.

Despite new car supply issues and difficulties sourcing used vehicles the group highlighted the role of strong margins in the result, with a GPU on new vehicles up over 30% at £1,949 and stable on used vehicles at over £2,100.

Raban told AM last year that he was "extremely proud of what we have achieved" after leading the once troubled PLC’s revival through the sector’s most turbulent period outside war time.

A good value deal

David Kendrick, UHY Hacker Young Manchester chief executive, told AM the deal does look "very good value".

He said: "The the market cap at the 120p share price gives a total value of circa £465m, however when you compare this to the net asset value (NAV) of the balance sheet, less the goodwill already stated within it and revalue the property portfolio, it would suggest it’s a discount to NAV which for a business making PBT of circa £80m is incredible.

"The deal certainly adds a new dynamic to the market if this deal completes to introduce another privately owned group that will likely have exciting aspirations for the UK, with Lithia already here and keen to expand, as well as Hedin.

"This could make Vertu and Pendragon even more attractive as the only two remaining franchised PLCs. There's never a dull day in the market, although franchise and Financial Conduct Authority (FCA) approvals still need to be achieved."

Kendrick added that there has never been this much acitivty from internationals looking to invest in the UK before and he expects there to be more entrants coming in should opportunities arise.

Steve Young, ICDP managing director, told AM that it's no shock there has been a bid, due to the level of interest from global investors in the UK automotive retail sector, but the potential buyer is a surprise.

He said: "I understand AAG have been interested in buying a UK group for a while now, but they're not well known and they're not a particularly large business.

“I also don’t think it’s a lot of money for the group, particularly considering how Lookers has been performing.”

A deal from another global investor is expected for Pendragon, with Young suggesting an acquisition is "inevitable".

Young said: “Pendragon has been an acqusition target for about three years now.

"I don’t see the momentum from the team at Pendragon to build for the future.

“There isn’t the same buzz of activity around them in the market, which in my mind shows they are ticking along waiting for the next bid.”