Group 1 Enters Fast-Growing Brazil Market With Purchase

Group 1 Automotive Inc., the U.S. auto-dealership group, moved to expand into the fast-growing Brazilian market by agreeing to acquire 18 stores there.

Group 1 plans to purchase Sao Paulo-based UAB Motors Participacoes SA for about $47.4 million cash, 1.45 million shares of Group 1 common stock and the assumption of about $62 million of debt, the company said yesterday in a statement. Group 1 expects to close the deal by the end of February.

The acquisition builds on Group 1’s more than 120 existing dealerships in the U.S. and U.K. The vehicle population in Brazil may expand to about 55 million by 2020 from 35 million today, according to Frost & Sullivan, a research and consulting firm. The U.S. new-vehicle market has expanded by at least 10 percent for three consecutive years and is approaching pre-recessionary levels of demand.

“There comes a time five years from now or eight years from now when there will be less growth opportunities in both the U.S. and the U.K., and we want to provide our shareholders with a longer-term growth avenue,” Earl Hesterberg, Group 1’s chief executive officer, said today in a telephone interview. “We think this is almost perfect.”

Automakers last year delivered 3.8 million vehicles in Brazil, the world’s fourth-largest auto market, and the country’s sales have grown at an average annual rate of more than 9 percent the last five years, according to Brazil’s auto manufacturer association Anfavea. The group is forecasting growth of at least 4 percent this year.

Earnings Impact

The acquisition of UAB will add 3 cents to 5 cents per share to diluted earnings in 2013, excluding any associated deal costs, Houston-based Group 1 said.

Group 1 and other U.S.-based dealership groups are benefiting from light-vehicle sales in their home market that climbed by 13 percent last year, the biggest increase since 1984. Deliveries in the U.S. may climb to 15.1 million this year from 14.5 million in 2012, the average of 18 analysts’ estimates compiled by Bloomberg.

“We see good market growth for several years” in the U.S., Hesterberg said. “We’ve got plenty of opportunity to expand externally in terms of more acquisitions here, so that’s not a near-term issue. But it could be long-term, and that was a factor in our looking for a growth market.”

Group 1, Penske Automotive Group Inc. and Lithia Motors Inc. earlier this week reached record share prices after a KeyBanc Capital Markets report about the auto retailers cited a “confident” outlook on U.S. vehicle sales and acquisitions.

“We are now bullish on the acquisitions outlook, driven by a more stable political and economic environment and supported by recent activity in the industry,” Brett Hoselton, a KeyBanc analyst in Cleveland, wrote in a Jan. 22 report.

Group 1 fell 0.5 percent to $67.40 at the close in New York. The shares rose 20 percent last year, outperforming the 13 percent gain by the Standard & Poor’s 500 Index.

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