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Sonic Automotive Inc Class A SAH

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Sonic Makes One of the Largest Ever Dealer Acquisitions With Purchase of 33-Store RFJ Auto Partners

Analyst Note

| David Whiston, CFA, CPA, CFE |

Sonic Automotive announced on Sept. 22 that it is purchasing Dallas-based RFJ Auto Partners for $700 million via cash on hand and we assume some new debt. According to Sonic, RFJ was in the top 15 of largest U.S. dealer groups by revenue (Automotive News ranks it 42nd by new vehicle units sold), and Sonic expects RFJ’s 33 stores (Sonic has 87 franchise stores) to add $3.2 billion in revenue in the first year with Sonic. The deal must close by Dec. 15 to avoid termination fees of as much as $7.5 million. RFJ had 2020 revenue of $2.8 billion, while Sonic had $9.8 billion. RFJ brings 16 brands, with five of them new to Sonic, including the world’s largest Chrysler, Dodge, Jeep Ram store. Other RFJ franchises include Chevrolet, Buick, GMC, Lexus, Toyota, Honda, Ford, Maserati, and Hyundai, and RFJ has used-vehicle-only stores that we expect will be rebranded under Sonic’s EchoPark used-vehicle stores. RFJ stores are in seven states, with six of those new to Sonic, mostly in the Northwest and Midwest. Both firms have large presences in Texas. With RFJ, Sonic’s 2025 total company revenue target is now $28.2 billion, up from $25 billion. We model $31.2 billion because we expect EchoPark to beat management’s 2025 target of $14 billion and RFJ should be larger than $3.2 billion by 2025.

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Company Profile

Business Description

Sonic Automotive is by our estimate the sixth- largest public auto dealership group in the United States by new-vehicle unit sales. The company has 87 franchised stores in 12 states, primarily in metropolitan areas in California, Texas, and the Southeast, plus about 25 EchoPark used-vehicle stores. In addition to new- and used-vehicle sales, the company derives revenue from parts and collision repair, finance, insurance, and wholesale auctions. Luxury and import dealerships make up about 88% of new-vehicle revenue, while Honda, BMW, Mercedes, and Toyota constitute about 60% of new-vehicle revenue. BMW is the largest brand at over 24%. 2020's revenue was $9.8 billion, with EchoPark's portion totaling $1.4 billion.

4401 Colwick Road
Charlotte, NC, 28211
T +1 704 566-2400
Sector Consumer Cyclical
Industry Auto & Truck Dealerships
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 8,100