Asbury Automotive: First 2023 Acquisition Is a Big One

On Sept. 8, Asbury Automotive Group announced an agreement to buy the 20-store Jim Koons Automotive Group for about $1.2 billion. For Asbury, which receives 29 franchises selling 15 brands and six collision centers, the deal is its entrance to the Washington, D.C., area. The transaction will close in the fourth quarter or in early 2024 and be funded via cash and credit lines. We are lowering our fair value estimate by about 9% to $360 per share because we've been modeling $480 million of 2023 acquisition spending. We feel Koons' 2022 revenue of over $3 billion and its size as the 23rd-largest U.S. auto dealer, according to Automotive News, merits a premium to the 0.3 price/sales multiple we had been assuming for 2023 deal spending. It is Asbury's first deal since announcing its $32 billion 2025 revenue target in April 2022 and management has guided to $6.9 billion of acquired revenue across 2023-25. It also said earlier this year that it will update the 2025 plan at the end of this year. If the $32 billion target is lowered, we'd expect more share repurchases but may also reduce our fair value estimate to reflect less revenue.