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Inchcape, the UK’s largest automotive distributor, is to sell its British dealerships for £346mn in cash, completing a strategic review it kicked off earlier this year to simplify its business.
US-headquartered Group 1 Automotive, which already has 51 UK sites, will buy its retail business, consisting of more than 80 forecourts across the country, Inchcape said on Monday.
The disposal of the retail unit, which has lower margins compared with its international car distribution arm, will help improve the group’s profitability.
Adrian Lewis, Inchcape’s chief financial officer, said there were several offers for its retail sites and following the deal, Inchcape would largely be a “pure-play” car distribution company.
“The car distribution market is fragmented globally, but we are seeing that more brands are looking for one single distributor,” he said.
The deal comes as some UK assets have become attractive targets for US companies amid the strengthening of the dollar. The transaction is also the latest in a series of takeovers in the UK motor retail sector where consolidation has meant only Vertu and Caffyns remain.
The company plans to keep its three dealership sites in Poland, which it will absorb into the distribution arm of its business.
Inchcape, which exports cars for global manufacturers across 40 countries, said it would use £100mn of the sale proceeds to buy back shares once the deal is completed, which is expected to happen during the third quarter of 2024.
The retail segment of Inchcape, which has partnerships with brands such as Audi, BMW, Volkswagen and Toyota, contributed to 18 per cent of its total revenue in 2023. The retail business’s profit margin was 2 per cent last year, compared with 5.8 per cent for the group as a whole over the same period.
The takeover of Inchcape’s dealerships will give New York-listed Group 1 Automotive which has outlets in London, sites in the northern part of the UK.
Inchcape warned last month that demand in its South Americas market this year was likely to be towards historic lows, as inflation and interest rates have continued to drag on household finances.
The deal helped the FTSE 250 company simplify its “complex” corporate structure, said James Bayliss, analyst at Berenberg. “The remaining business is then one with higher margins and with clear long-term structural drivers, where the potential for more deals now looks higher,” he said.
Inchcape shares traded on the London Stock Exchange rose 5 per cent per cent on Monday.
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