BLOG: Battle for control

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Lithia and Hedin have tabled unsuccessful presents for Pendragon. The group is now ‘very visibly’ in play says Steve Younger


A attribute of the UK automobile retail market is the dominance of the big supplier teams. The High 10 teams held over 1 / 4 of the entire new automobile market in 2019, and the High 50 teams held half the market. The evolution of the teams as built-in operations kicked off with the formation of Pendragon, spun out of a diversified conglomerate in 1989 with an preliminary 19 dealerships. A collection of acquisitions of great teams fuelled additional development, supported by the event of a standalone used automobile model, the acquisition of a DMS developer (Pinewood) and the expansion of central and divisional shared providers. There have been additionally some efforts to develop outdoors the UK, with companies in Germany and the US, nearly all now bought, and a few upsets within the development trajectory. Having been the most important supplier group in Europe for various years, they’ve now slipped again to sixth place measured by way of retail new automobile quantity.

Sadly, in the previous few years the corporate has develop into higher identified for administration points than enterprise innovation and success following the departure of long-time CEO, Trevor Finn, a short-lived alternative, after which the appointment of ex-Autonation boss Invoice Berman who has attracted controversy for his bonus packages. Possession has develop into concentrated with Swedish supplier group Hedin holding 27% and 4 funding funds holding a complete of 38%, all clearly anticipating an impending change of possession with Hedin having been seen till now as the plain candidate, having already made acquisitions in Belgium, Czech Republic, Finland, Hungary, Netherlands, Slovakia and Switzerland within the final yr. The Pendragon Board rejected a takeover provide from Hedin valuing the enterprise at £400m in March this yr, however the expectation was that it was solely a matter of time earlier than they got here again with an improved provide.

Within the final couple weeks that assumption has been challenged by the announcement of an strategy, initially described as being from a “giant worldwide company”, which was conditional on the assist of the 5 largest shareholders, however had failed after one of many 5 rejected the provide. The thriller bidder was revealed as Lithia Motors, one of many few publicly listed US supplier teams, with turnover final yr of US$21bln, so round 50% greater than Europe’s largest distributor/supplier group, Emil Frey. The provide was solely marginally higher than the rejected Hedin provide, however the Board had been set to suggest it, maybe reflecting the fraught relationship with Hedin. We now appear set for a battle between Hedin and Lithia to realize management of Pendragon, and safe a place as one of many largest UK supplier teams. If Hedin are profitable, it is going to transfer them up the European charts to being round degree with Penske, combating for second place.

Penske and Group 1 are the 2 present US buyers in UK auto retail, however there are additionally a variety of different overseas buyers current, together with Chinese language, Center Jap and South African, all current within the UK High 50. Final December I wrote a weblog in regards to the cross-border growth of supplier teams in Europe, and there have been a succession of offers persevering with in 2022. The sale of Pendragon to a overseas purchaser would solely proceed this development, although the dimensions is clearly bigger. As I discussed in that earlier weblog, the potential operational synergies to be achieved in these long-distance worldwide acquisitions are restricted. There’s little or no {that a} Swedish or US investor will have the ability to do on a gaggle foundation that advantages a UK-based enterprise that already has substantial scale. The query then is what’s the logic for such a deal?

One uncommon function of Pendragon is that it nonetheless owns Pinewood, the supplier techniques supplier I discussed earlier. Some analysts counsel that Pinewood alone is value nearly the total share value that’s at the moment utilized to Pendragon. Given the growing significance of IT in an omni-channel world, buying this jewel alone might nearly justify the acquisition of the entire group.

Past that, the company troubles of Pendragon have most likely gone nearly unnoticed by the shopping for public, who solely see the retail manufacturers of Evans Halshaw, Stratstone and CarStore. As a former buyer, I can testify to weaknesses in customer support, and as an trade observer I can determine previous improvements that haven’t been absolutely exploited, or have been dropped, probably for the unsuitable causes. There’s subsequently a turnaround job to be achieved operationally on Pendragon, however the uncooked materials is there. What’s required is a return to stability, and administration in depth who can drive the enterprise ahead and match the efficiency of the opposite giant UK teams.

Each Hedin and Lithia have the flexibility to try this, and now that Pendragon is so visibly in play with such important suitors, there needs to be each risk that one or two others may be interested in the celebration. This needs to be excellent news for Pendragon, their clients and the OEMs who nonetheless depend on them to promote one in 30 automobiles within the UK.

• Steve Younger is managing director of ICDP

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