An acquisition that nearly doubles the size of your dealership group might seem daunting, but Brandon Steven, president of Brandon Steven Motors, relishes such challenges. So, when Artin Sepanian from commercial real estate giant CBRE called Steven about a single-point Volkswagen dealership, he wasn’t at all interested.
“Artin, just stop calling me about these small things,” Steven said he told Sepanian. “I’m only interested in big deals.”
CBRE got back to Steven with a possible acquisition that wasn’t even on the market yet — buying 12 rooftops in southern Maryland. Steven was in, and Brandon Steven Motors in mid-April acquired the Southern Maryland Automotive Group dealerships from Kody Holdings.
Steven sees huge potential in the stores, but it won’t come without significant investment. “There’s a lot of capex to be spent,” Steven told WardsAuto in a Zoom call.
Valuation hurdle
The acquisition includes five Ford franchises, a Honda and a Toyota franchise, two Chevrolet franchises, a Cadillac franchise, Buick and GMC franchises, a Lincoln franchise, and a Chrysler Dodge Jeep Ram store.
Brandon Steven Motors now includes 33 new-car rooftops, spread more or less evenly between its headquarters in Kansas City, Southern California and Southern Maryland.
Most of the just-acquired dealership facilities will need to be upgraded to a current image program, James Mitchell, senior vice president and head of CBRE’s Auto Dealership Capital Markets team told WardsAuto on a Zoom call. CBRE represented Kody Holdings in the transaction.
“Every dealership was going to require some kind of capex,” he said.
That made placing a value on the acquisition tough, Mitchell said, because among other factors, “materials costs are changing every day.”
CBRE, which is the world’s largest real estate services and investment firm, drew on external experts and its own experience, but “we had to work hard to come into a consensus with the seller on what a reasonable number would be based on,” Mitchell said.
Brandon Steven Motors paid close to $500,000 for the dealerships.
Steven figures it was a fair price because of the brands’ dominance in southern Maryland. For example, “How do you put a value on a Ford store that’s, you know, in that market when it’s Ford country?” he said.
A lock on domestic business
The brands are in great positions, Mitchell agreed. It’s the only portfolio he has ever worked on where one brand, Ford, had so much coverage in one area, he said. Add the other domestic brands included in the deal and Brandon Steven Motors has “a lock on all the domestic business in southern Maryland,” Mitchell said.
The Lincoln and Cadillac stores are also the only luxury brands in southern Maryland, he said. When other luxury brands such as Mercedes-Benz or BMW or Lexus do want to enter the market with open points, “they’ll have to go with Brandon,” Mitchell said.
The stores’ management was another bonus.
Steven kept all the top management, even the CEO. “I was just blown away” by the quality of the team, Steven said.
He will make some changes, however. While the stores were doing well, the marketing was “antiquated,” Steven said. He sees other areas for improvement, as well, including not using outside technology vendors. “I am a tech nerd,” Steven said. “I am going to bring a lot of efficiencies and technology we do in-house.”
Steven specifically mentioned how smooth it was to work with Chase Bank to finance the large acquisition. It syndicated the deal, meaning Chase was the lead bank but it brought other banks in to share the risk.
He was worried about working with such a large institution, Steven said, but Chase “exceeded all expectations I had for a bank.”
