Asbury Automotive Group, Inc. (NYSE: ABG), one of the largest automotive retail and service companies in the U.S., entered into a definitive agreement to acquire certain assets of Park Place Dealerships, one of the country's largest and most prominent luxury dealer groups for $685 million of goodwill and approximately $50 million for parts, fixed assets, and leaseholds, excluding vehicle inventory.

"We are pleased our business model and performance allowed us to navigate the current environment and re-engage on a highly strategic acquisition that will make us an even stronger company. We have seen our new and used volume sequentially improve each week in May and June with higher profit per vehicle. We have also seen our Parts and Service business improve in June as the economy gradually opens-up. Strong May and June performance, along with cost restructuring efforts, have driven higher profitability and cash flow, giving us conviction to move forward with a revised Park Place acquisition. In March, we had to step away from the transaction due to lack of visibility around COVID-19, but after seeing the rebound off the April low, we can proceed with a more refined deal under more flexible and favorable terms" said David Hult, Asbury's President and Chief Executive Officer.

"Park Place is highly regarded as one of the best and most efficient operators of luxury stores in the industry. Their portfolio of stores comes with a strong base of loyal clients and long-tenured team members throughout the high growth Dallas/Fort Worth market. This acquisition will enhance our total portfolio and add approximately $1.7 billion in expected annualized revenues. We are thankful to all of our employees who have worked so hard over the last few months to manage through this pandemic. The talent in our organization and the resilience of the dealer model have put us in a position to acquire Park Place and become a more diversified company," Hult added.

The operating assets to be acquired include 12 new vehicle franchises, all of which are located in the attractive Dallas/Fort Worth market: 3 Mercedes-Benz, 3 Sprinter, 2 Lexus, 1 Jaguar and 1 Land Rover, 1 Porsche, and 1 Volvo. The acquisition will also include the Park Place auto auction and two collision centers.

The transaction is expected to increase Asbury's geographic mix to 28% of revenue derived from the Texas market, and further diversify the Company's overall portfolio from 36% to approximately 49% of revenue derived from luxury brands. The luxury segment has historically delivered strong and stable margins that are significantly above those achieved by mid-line import and domestic brands. Luxury stores also tend to be more resilient in downturns, operate fewer dealers nation-wide and maintain a higher portion of gross profit from parts and service.

Park Place has a highly attractive mix of large dealerships with revenue comprised of 38% Mercedes-Benz, 37% Lexus, 12% Jaguar/Land Rover, 9% Porsche, and 5% Volvo.

Park Place owns and operates a portfolio of high volume, award winning luxury dealerships with premier real estate. Four stores are ranked among the top 10 stores in volume in the country amongst their franchise: Mercedes-Benz, Lexus, Porsche, and the Jaguar/Land Rover store. In addition, the other Lexus store and the Volvo store are ranked in the top 20 nationally.

Financial Impact

The purchase price includes $685 million of goodwill and approximately $50 million for parts, fixed assets, and leaseholds, excluding vehicle inventory. The transaction is targeted to close in the third quarter of 2020. It is subject to customary closing conditions.

The Company expects to achieve significant synergies over the next three years through integrating Park Place with Asbury. The purchase price reflects a 7.7x multiple on targeted EBITDA of $95 million, including run-rate synergies of at least $20 million, expected to be realized over the next three years. In addition, Asbury is expecting $10 million in annual cash tax savings from goodwill amortization with a present value of approximately $80 million. In all, the Company believes the returns on the Park Place investment will exceed its cost of capital and will deliver substantial value to shareholders.

The acquisition of Park Place, assuming an end of August close, is expected to be accretive to 2021 earnings. Asbury also expects to incur pre-tax costs associated with the transaction of approximately $0.20 per share in Q3 2020.

Q2 2020 Preliminary Monthly Results

The following table presents selected preliminary unaudited financial results as of, and for, each of the three months ended June 30, 2020. The unaudited financial results reflects our preliminary estimates based on currently available information. Our financial closing procedures for the three months ended June 30, 2020 are not yet complete and, as a result, our final results upon completion of our closing procedures may vary from these preliminary estimates. Estimates of results are inherently uncertain and subject to change, and we undertake no obligation to update this information. These estimates should not be viewed as a substitute for interim financial statements prepared in accordance with U.S. GAAP. Our independent registered public accounting firm has not conducted a review of and does not express an opinion or any other form of assurance with respect to, these preliminary estimates.