Marshall Motor Holdings Plc (LON:MMH), one of the UK’s leading automotive retail groups, has announced the strategic acquisition of the entire issued share capital of Motorline Holdings Limited (including all of its subsidiaries), for a cash consideration of £64.5m funded from the Group’s existing cash resources. The net assets on acquisition include c.£20m of cash and c.£10m of debt.
The Group has also separately acquired a related freehold property for £2.9m and has the option to acquire two additional strategic freehold properties for £24.9m.
Motorline is a leading multi-franchise dealer group headquartered in Canterbury and operating across Kent, West Sussex, Surrey, Berkshire, Bristol, South Wales and the West Midlands. It represents ten brands through 48 operating franchises including Toyota, Lexus, Hyundai, Volkswagen, Audi, ŠKODA, Nissan, Peugeot, and Maserati. In addition, it operates four Volkswagen Group Trade Parts Specialist (TPS) businesses and five used car centres.
Motorline’s consolidated revenues for the year ending 31 December 2020 were £695.2m with profit before tax of £6.1m (which included a one-off profit on the disposal of freehold property and other one-off items of in aggregate c£4.0m). Motorline’s consolidated shareholder funds at completion are c.£30m, including c.£20m of cash and c.£10m of debt.
Strategic Rationale Overview
· The Acquisition is in line with the Group’s strategy which includes growing scale with its chosen brand partners; annual revenues expected to exceed £3bn.
· Scaled entry to the Toyota and Lexus brands – Motorline is the second largest retail partner for Toyota and Lexus in the UK with 19 franchises; Toyota/Lexus is the largest vehicle manufacturer globally with a passenger car market share of approximately 7.2% in the UK.
· Scaled entry to the Hyundai brand – Motorline is the joint second largest Hyundai retail partner in the UK with seven franchises. Hyundai is the third largest vehicle manufacturer globally with a UK market share of approximately 4.0%.
· Further strengthens the Group’s position in terms of scale and depth of relationship with Volkswagen Group through new locations with the Volkswagen, Audi and ŠKODA brands in attractive territories, together with additional Volkswagen Group TPS locations.
· Addition of seven further Nissan franchises, making the Group the fourth largest Nissan retail partner in the UK with ten franchises.
· Addition of four further Peugeot franchises, making the Group the joint second largest Peugeot retail partner in the UK with seven franchises.
· Addition of new brands increases the Group’s brand coverage to 85.4%, enabling synergies for used vehicle remarketing and fleet sales.
· Extends the Group’s geographic footprint into a further eight counties with the Group now having representation in 37 counties in England and Wales, further strengthening the Group’s used car proposition.
· Acquisition fully supported by all brand partners, both new and existing.
Financial Benefits Overview
· Earnings enhancing from first full year of ownership with significant potential for further improvement in financial and operating performance.
· Internal rate of return materially in excess of the Group’s weighted average cost of capital.
· Well invested property portfolio; no material capital expenditure in the short to medium term.
· Option to acquire two additional strategic freehold properties.
· Funded from the Group’s existing cash resources; the Group remains in an adjusted net cash* position post-Acquisition (pre exercise of property options).
* adjusted net cash/debt excludes the impact of IFRS16 Leases
Daksh Gupta, Group Chief Executive, commented:
“We are delighted to announce the acquisition of Motorline in line with our strategy which includes growing both further scale with existing brand partners and developing scaled relationships with selected new brand partners.
Motorline is an extremely well-respected, long-standing business. The Obee family have overseen a significant expansion of the business in recent years and have invested in a market-leading property portfolio.
The acquisition has been funded from existing cash resources and is expected to generate attractive financial returns for our Group.
We are delighted to begin new and significant partnerships with Toyota/Lexus and Hyundai. These brands, with a combined market share in the UK of over 11%, have been a target for the Group for some time and the acquisition of Motorline provides immediate scale with each of them. I would like to thank each of them for supporting this acquisition and very much look forward to working with them over the coming years to develop a mutually successful partnership.
I would also like to take the opportunity to thank our existing brand partners for their continued support for the further growth and development of the Group for which we are extremely grateful.
Finally, and most importantly, I would like to welcome our 1,500 new Motorline colleagues to the Group. I look forward to meeting you soon and to working with you over the coming years.”
About Motorline
Founded in 1972, Motorline is a leading family-owned, multi-franchise dealer group headquartered in Canterbury and operating across Kent, West Sussex, Surrey, Berkshire, Bristol, South Wales and the West Midlands.
Motorline employs c.1,500 colleagues and represents ten brands through 48 operating franchises including:
· Toyota (13 sites)
· Toyota Commercial Vehicles (1 site)
· Hyundai (7 sites)
· Nissan (7 sites)
· Lexus (5 sites)
· Peugeot (4 sites)
· Volkswagen (4 sites)
· Audi (3 sites)
· ŠKODA (3 sites)
· Maserati (1 site).
In addition, it operates four Volkswagen Group TPS businesses and five used car centres.
Motorline is the second largest Toyota and Lexus partner in the UK and has represented Toyota for over 45 years.
Financial Overview of Motorline
The consolidated statutory accounts for Motorline for the year ended 31 December 2020 showed revenue of £695.2m. This was a 3.1% decline versus 2019 reported revenue of £717.8m, driven by the impact of COVID lockdowns. 2020 profit before tax was £6.1m which included a one-off profit on the disposal of freehold property and other one-off items of in aggregate c.£4.0m, as well as the benefit of Government support such as CJRS.
Net assets at completion are c.£30m, including c.£20m of cash and c.£10m of debt.
2021 trading to date has been strong, benefiting from the same industry tailwinds as previously reported by the Group.
Strategic Rationale
Growing scale with its chosen brand partners is a key part of the Group’s overall strategy. Scale facilitates our ongoing investment in new technologies, increases the efficiency of our business model by spreading costs, enables an expansion of our consumer proposition, both digital and physical, as well as providing greater consumer choice as a result of increased stock availability, particularly in used cars. As previously stated, the automotive sector is undergoing a period of significant change and we believe that scale, both in its own right but also importantly with the right brand partners, will increasingly be an important factor to the success of automotive retailers.
As the Group has grown over recent years, so has the depth of its relationships with manufacturer partners. These strong and deepening relationships will help to ensure the Group remains a relevant and important part of manufacturers’ future retail and aftersales strategies.
The Group therefore identified Motorline for acquisition for a number of reasons aligned to its strategy:
· A well respected dealer group with well-invested facilities but with scope for operational and financial improvements: Motorline has been owned by the Obee family for 50 years and has grown to become a significant Top 20 dealer group with strong brand partner relationships and well-invested facilities. Whilst Motorline’s performance has been good, there is significant further potential to leverage the enlarged group’s scale and maximise its operational and financial performance as part of the wider Marshall business.
· Scaled entry into the Toyota and Lexus brands: Toyota/Lexus is the largest vehicle manufacturer globally and with a market share of approximately 7.2% in the UK. Motorline is the second largest representative for Toyota and Lexus in the UK and the Acquisition therefore enables immediate, meaningful scale across 19 franchises with these brands in excellent territories.
· Scaled entry into Hyundai brand: the Acquisition provides scaled entry to the Hyundai brand with seven franchises, again in excellent territories and making the Group the joint second largest Hyundai retail partner in the UK.
· Further strengthens relationship with Volkswagen Group: the addition of three Audi, four Volkswagen and three ŠKODA franchises, together with four TPS businesses, further strengthens the Group’s relationship with Volkswagen Group and cements its position as a major partner for Volkswagen Group in the UK.
· Growth with Nissan: the addition of seven further Nissan franchises makes the Group the fourth largest Nissan retail partner in the UK with 10 franchises.
· Growth with Peugeot: the addition of four further Peugeot franchises makes the Group the joint second largest Peugeot retail partner in the UK with seven franchises.
· New and attractive geographical territories: Motorline operates in attractive territories, a number of which are new territories for the Group, including in Kent, West Sussex, Bristol, South Wales and the West Midlands. The Group now operates in 37 counties in England and Wales covering a significant proportion of the population and providing a strong platform for future used car growth.
· Manufacturer support: the Acquisition is fully supported by all relevant manufacturers, both those whom the Group currently represents and those it does not, including in particular, Toyota, Lexus and Hyundai.
The table below shows the current and resultant number of sites for the Group following the Acquisition:
| Franchised Dealerships | |||
| Brand | MMH | Motorline | Enlarged group |
| Audi | 9 | 3 | 12 |
| BMW | 4 | – | 4 |
| Ford | 2 | – | 2 |
| Ford Commercial | 2 | – | 2 |
| Honda | 7 | – | 7 |
| Hyundai | – | 7 | 7 |
| Jaguar | 7 | – | 7 |
| Kia | 2 | – | 2 |
| Land Rover | 9 | – | 9 |
| LEVC | 1 | – | 1 |
| Lexus | – | 5 | 5 |
| Maserati | – | 1 | 1 |
| Mercedes-Benz | 9 | – | 9 |
| Mercedes-Benz Commercial | 4 | – | 4 |
| MINI | 4 | – | 4 |
| Nissan | 3 | 7 | 10 |
| Peugeot | 3 | 4 | 7 |
| SEAT | 4 | – | 4 |
| ŠKODA | 12 | 3 | 15 |
| smart | 2 | – | 2 |
| Toyota | – | 13 | 13 |
| Toyota Commercial | – | 1 | 1 |
| Vauxhall | 2 | – | 2 |
| Volkswagen | 15 | 4 | 19 |
| Volkswagen Commercial | 6 | – | 6 |
| Volvo | 9 | – | 9 |
| Total | 116 | 48 | 164 |
| Other Standalone Operations | |||
| TPS | 6 | 4 | 10 |
| Used car centres | 2 | 5 | 7 |
| Body shops | 6 | – | 6 |
| PDI centre | 1 | – | 1 |
| Total | 131 | 57 | 188 |
Following the Acquisition, the Group now operates a total of 164 franchises covering 27 brands, across 37 counties in England and Wales. In addition, the Group operates 10 trade parts specialists, seven used car centres, six standalone body shops and one pre delivery inspection centre.
The Group does not expect to make any material changes to its portfolio as a result of the Acquisition but will continue to review its portfolio on an ongoing basis to ensure appropriate representation and maximisation of opportunities. The Group’s strategy is to continue to grow scale with selected brand partners. However, it will only do so where it makes strategic and financial sense for its shareholders whilst maintaining its strong balance sheet.
Acquisition Terms
The Group has acquired the entire issued share capital of Motorline from Glen Obee, Thomas Obee, Sarah Obee and Anne Obee (Sellers) for a cash consideration of £64.5m, funded from the Group’s existing cash resources. In addition, the Group has acquired the freehold property occupied by Motorline’s Canterbury ŠKODA dealership for £2.9m from GGT Estates Limited (GGTE), a property company controlled by the Sellers.
The Group has also been granted options (Property Options) to acquire from GGTE the strategic freeholds of the Tunbridge Wells Audi dealership for £12.1m and the newly constructed Bristol Toyota/Lexus dealership for £12.8m. The Property Options may be exercised by the Group within 6 months and 18 months respectively of the Acquisition and it is currently expected that the Group will exercise these options in due course. Pending exercise of the Property Options, these properties will be occupied under lease from GGTE.
Finally, 14 other properties occupied by Motorline are leased from GGTE. New leases have been negotiated and put in place between Motorline and GGTE on arm’s length commercial terms.
A retention amount of £1.3m will be held for a period of one year from completion of the Acquisition from which the Group may set off any successful warranty and/or indemnity claims it has against the Sellers.
Financing
The Acquisition has been funded from the Group’s existing cash resources following strong cash generation over the past 18 months.
At completion, the Group assumed c.£10m of Motorline debt and acquired c.£20m of Motorline cash. The Group remains in an adjusted net cash* position post-Acquisition (pre-exercise of the Property Options).
Financial Guidance Items
· Return on investment materially in excess of the Group’s weighted average cost of capital.
· Earnings enhancing from first full year: 2022 profit before tax expected to be impacted by well documented supply constraints; profit before tax increases in 2023 and achieves normalised levels from 2024/2025.
· Integration programme to deliver optimal profitability from 2024/2025. Integration planning well underway; non-underlying integration costs of c.£10.0m over two years.
· Acquisition fees of approximately £1.3m plus stamp duty of approximately £1.0m in 2021.
· Underlying effective tax rate expected to remain at c.21-22% (subject to any changes in the prevailing tax rates).
· Enlarged Group’s ongoing capital expenditure (including maintenance expenditure) expected to increase by only c.£2.5m per year, reflecting the well-invested nature of Motorline’s properties.
· Option to purchase two further strategic freehold properties for £24.9m.
· Initial fair value estimates to be included in the Group’s 2021 full year results.
· Limited net debt expected at 31 December 2021 even if Property Options are exercised before then; the Group’s balance sheet remains strong.
