By Alysha Webb, Editor and Publisher
When GPB Capital begin viewing the presentation that The Presidio Group had prepared for potential investors in the Kenny Ross Automotive Group, they quickly realized it was a perfect fit for GPB’s strategy. A big clue? The chairman of the group.
Jimmy Ross is a Wharton business school graduate, but just as importantly, he is very civic-minded, he has values, and he is respected in his community, says Scott Naugle, managing director automotive retail at GPB Capital.
“Jimmy Ross is just a wonderful guy,” Naugle tells Automotive Buy Sell Report. “He exemplified every single thing we were looking for.”
Scott Naugle, GPB Capital
As non-traditional players increasingly look for acquisitions in the auto retail sector, the quality of a dealership or group’s management team is crucial. In most cases, that team will continue to run the dealership.
GPB Capital, an asset manager focused on income-producing private equity, brings additional resources to the equation that it hopes will make an already strong auto retailer unbeatable.
“We like dealerships to stick with what they do best,” says Naugle.
That means selling cars, but even the best-run dealerships can often use some expert advice. GPB Capital has that in spades. Its 12-person automotive team has more than 200 years of auto retail experience, says Naugle. He was director of corporate finance and accounting at DCH Automotive Group before joining GPB.
GPB Capital, based in New York City, looks below the gross profit line to see where improvements are possible, says Naugle. If, for example, it sees that used car profits are slipping, “we have a used car guy,” he says. If someone from the Kenny Ross Group reaches out, “we can help in any area,” says Naugle.
The Kenny Ross Auto Group, based in Pittsburgh, Pa., includes 10 dealerships and nine brands – Chevrolet, Buick, Cadillac, GMC, Ford, Mazda, Nissan, Subaru, and Toyota. GPB capital acquired nine of the ten. It declined to reveal which dealership was not part of the deal.
GPB Capital is the majority owner of the group. Naugle wouldn’t reveal how much the Ross family still owns. But he did say the original owner share “sweet spot” is between 15 and 25 percent.
Naugle refers to GPB Capital as a dealership consolidator. It has been making acquisitions in the auto retail sector since its founding in 2013.
Though he wouldn’t lay out the full extent of GPB’s dealership holdings, Naugle says they include the Ron Carter Auto Group in Alvin, Tex.; FX Caprara Car Companies in Watertown, N.Y.; Bill Kolb Jr. Subaru in Orangeburg, N.Y.; Rockville Centre GMC in Rockville Centre, N.Y.; and Nissan of Garden City in Hempstead, on Long Island in New York state.
Bottom line: GPB has significant auto retail assets. That economy of scale allows it to bring down operating costs for groups such as Kenny Ross in areas ranging from better lending rates to “more regimented” procurement costs, says Naugle.
Buying platforms then tucking in
GPB Capital decided to begin acquiring dealerships after taking a long, hard look at the sector, says Naugle. The firm decided auto retail shared traits with other industries it investments in, which include managed IT services, healthcare services, and waste management.
The traits GPB looks for are: Current and sustainable yield; recession resilience; high barriers to entry; and a proven partner and management team.
There are only around 2,500 dealership owners, making it an exclusive club. As well, “you have to have cash to buy a car dealership and you aren’t going to own a car dealership unless you know how to run one,” says Naugle.
“Even during the downturn, the vast majority of dealerships were profitable,” he says.
The acquisition of the Kenny Ross Automotive Group follows a pattern for GPB Capital. It acquires a platform in an area where it doesn’t currently have dealerships and then buys “tuck-ins” — additional single-point stores or groups.
Expect more dealership acquisitions from GPB Capital, says Naugle.
“Our job is to build the best dealership group on the planet” he says. “We will continue to raise and deploy cash and raise value for our investment.”
Some of those acquisitions will surely be in the Pittsburgh area.
“Jimmy [Ross] can start scoping out other opportunities for us in Pittsburgh,” says Naugle. “He can be a deal source. He still owns part of the dealership [group]. To the extent we increase that bottom line, it enriches him. It is symbiotic.”
