Quadrant Private Equity buys into Sydney car dealer Peter Warren

23/11/2016 News

Private equity firm Quadrant has bought a large chunk of the Peter Warren Automotive Group which generates $1 billion in revenue annually from nine vehicle retailing outlets in Sydney and the Gold Coast, as corporate activity accelerates in the $81 billion industry.

The Peter Warren Automotive Group began in 1958 as a small used car yard near the Liverpool railway station in outer Sydney and has grown to become a business with 1100 staff. It sells about 21,000 cars each year across 23 different car brands including Mercedes-Benz, Ford and Toyota.

The company's chairman and chief executive Paul Warren, whose father Peter set up the business, said the investment by Quadrant would enable the business to look for more acquisitions in a sector where bigger was better and the advantages of scale were becoming more apparent.

"One hundred per cent. We're out there talking to people at the moment," Mr Warren said.

The business has a flagship site at Warwick Farm in Sydney's west but its stable also includes Mercedes-Benz North Shore at Mosman and Chatswood in Sydney which are trading strongly.

"Mercedes-Benz is going very well," Mr Warren said.

Wave of consolidation

The capital injection by Quadrant comes as the car retailing industry undergoes a wave of consolidation in a sector which is still highly fragmented, where the bulk of the estimated 3000 car dealers across Australia are still owned by single operators or smaller operators.

Mr Warren said the rising costs of technology meant that building up scale was very important in being able to operate an efficient business.

"Scale helps you to spread investment over the sites," he said. But there was also no substitute for strong relationships and first-class customer service. He said the business was on target to deliver record sales this financial year.

Mr Warren said the company had been in talks with Quadrant since April and hadn't been influenced by the ASX listing process undertaken by Autosports Group, which operates 25 vehicle dealerships in the eastern states and two crash repair outlets.

Autosports raised $160 million in fresh capital and its issue price was $2.40 per share. It made a solid debut on November 16 but has since softened.

The investment by Quadrant is the third investment in the new $1 billion fund raised in August, but the firm has also been busy with the purchase of eight bolt-on companies in the last six months.

This deal was led by Quadrant partners Justin Ryan and Jonathon Pearce.

Quadrant executive chairman Chris Hadley said the Peter Warren Automotive Group had an outstanding reputation across the industry. It had a "market leading focus on customer satisfaction and service, and a diverse portfolio of high quality, aspirational brands", he said.

Autosports chief executive Nick Pagent told The Australian Financial Review last week that his business wanted to expand through acquisitions and greenfield sites but would stay focused on the premium end of the market which is growing at a faster rate than mainstream brands.

Autosports joined two other larger car dealership groups that are listed on the ASX, AP Eagers and Automotive Holdings Group. Brisbane-based AP Eagers has a 19.9 per cent stake in Perth-based Automotive Holdings Group, which is Australia's largest car dealership group but has been weighed down by the poor performance of a separate logistics and cold storage business which it is looking to sell after heavy restructuring.

Big is better approach

Automotive retailing is a high-volume, low-margin business which means that a "bigger is better" approach is being pursued by many players who are seeking to add scale.

The industry is also facing headwinds from the heavy scrutiny by the Australian Securities and Investments Commission into some of the financing practices by car dealers, with a particular focus by the regulator on "flex commissions" and high interest rates being charged by some dealers as customers sign up to buy vehicles using finance packages through dealers.

Mr Warren said the big shift in the market, where sports-utility vehicles and four-wheel drives now represented about half of total new vehicle sales, would keep accelerating.

"The ute has really come of age," he said. A dual-cab ute could serve a family as a robust work vehicle during the week but was so well-appointed inside that it was like a luxury vehicle on the weekends for leisure outings and taking children to sporting activities.

Quadrant was advised by Deloitte Corporate Finance and Gilbert + Tobin.

Writen by Global Administrator, 23/11/2016 News