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.