Penske Automotive Group (PAG) on November 19 announced it had acquired two Toyota and two Lexus dealerships, including Longo Toyota, the top Toyota dealership in the United States. Publicly listed PAG acquired the franchises from Penske Motor Group, part of Penske Corp.
You might be forgiven for being a bit confused with all the Penskes in that paragraph. But the transaction was actually “very, very simple,” Tony Pordon, executive vice president and head of investor relations and corporate business development at PAG, told WardsAuto in a phone call.
Besides Longo Toyota, located in the Los Angeles suburb of El Monte, Calif., the acquisition included Longo Lexus, also in El Monte; Lexus of Stevens Creek in San Jose, Calif.; and Longo Toyota of Prosper, in the Dallas suburb of Prosper, Texas.
The dealerships were majority owned and operated by Greg Penske, son of PAG chairman and CEO Roger Penske. Greg Penske is also vice-chairman of PAG.
Another partner owned around 5% of Penske Motor Group; Penske Corp., the parent company of PAG, owned the rest, Pordon said.
“PAG last week bought all of those businesses from Greg Penske and the other parties,” Pordon said in the Nov. 24 phone call. “PAG now owns 100% of all four dealerships. It owned nothing before.”
The dealerships are expected to add over $1.5 billion in annualized revenue, the press release said. The dealerships collectively sold more than 28,000 new and used vehicles in 2024.
The facilities are all image-compliant and PAG will retain the existing management, Pordon said.
The acquisitions strengthened PAG’s relationship with Toyota Motor Corp. — it now owns 16 Toyota and seven Lexus franchises, he said.
They also give PAG an entrance into the Los Angeles Metro area, which includes “huge demographics” for both Toyota and Lexus, Pordon said.
The Stevens Creek Lexus store is close to PAG’s existing Audi and Porsche stores in Northern California, he said. The Dallas-area store will allow PAG to expand in a fast-growing market, Pordon added.
“It was a home run for us,” he said.
Extra transparency and oversight
PAG has made large acquisitions in the past and not disclosed so many details but, with the Penske Motor Group acquisition, “we are okay to do that because of two Penskes involved so we felt it should be very transparent,” Pordon said.
In a Securities and Exchange Commission filing, PAG revealed that it paid $519,423,000 for the dealerships.
The price was determined using a market-based multiple and everything was negotiated at arm’s length, Pordon said. “We made sure everything was above the board.”
The PAG Board’s approval of the transaction was subject to the recommendation of a special committee of independent members of the Board which reviewed and negotiated the terms of the transaction, including retaining its own legal and financial advisors which had the authority to reject the transaction, the SEC filing said.
Such oversight is common in transactions where there is an obvious potential conflict of interest, Todd Berko, co-managing partner of Bel Air Partners, a dealership advisory firm, told WardsAuto on a Zoom call. Bel Air has been engaged to produce such “fairness opinions” in the past, Berko said.
In the case of PAG’s acquisition, “the Board would hire somebody to value the business so nobody can say they paid too much because it was Roger,” he said.
Hard to argue with the price
Given the stellar nature of the brands and franchises involved — especially Longo Toyota — arriving at a “fair” price was probably not that difficult, Berko said. The store’s large customer base and long track record of stable earnings makes valuation easier, he said.
To arrive at a price for a dealership, parties must agree on a Blue Sky multiple and use that to determine the Blue Sky value.
The Blue Sky value for a dealership is generally pre-tax earnings multiplied by the Blue Sky multiple — a representation of goodwill, determined by a variety of factors including the location and brand. The value of tangible assets is added to arrive at a valuation.
Toyota and Lexus stores generally have some of the highest Blue Sky multiples among automotive franchises.
“Everyone has an opinion on Blue Sky,” Berko said, “(but) on a Toyota store, you’re not going to disagree too much.”
