A former telecom executive who in December took a fledgling vehicle subscription and used-vehicle business public now aims to roll up dozens of franchised dealerships to establish that company as a new player among public auto retailers.
In the last eight weeks, Samer Tawfik’s company, LMP Automotive Holdings Inc., has announced deals to buy all or part of nine franchised dealerships and three used-vehicle stores in four Southern states for a total of about $120 million. Tawfik said LMP could have as many as 50 dealerships in its portfolio or under contract within a year.
“We are trying to be the most aggressive acquirer that the industry has seen,” Tawfik, LMP’s CEO, told Automotive News.
It’s an ambitious plan and one Tawfik said will require turning to the capital markets to borrow money for at least the initial deals. LMP had $17.7 million in cash on hand at the end of June and posted its first quarterly profit — a modest $216,102 — in the second quarter. The just-announced deals would give LMP an estimated additional $645 million in revenue and $16.4 million in net income next year, the company said last week.
But how will Tawfik and LMP — unknown to many in the industry — get it done?
Some buy-sell experts and auto retail analysts are skeptical, noting that LMP’s plan requires automaker approvals and hundreds of millions of dollars or more to pull off. Buying 50 stores in a year may be too ambitious, said Sheldon Sandler, CEO of Bel Air Partners, a buy-sell advisory firm in Hopewell, N.J.
“Whoever is running this company is taking lessons from Elon Musk. That is a record that has never been achieved by anybody, period,” said Sandler, a former Securities and Exchange Commission chief examiner who helped guide heavy-truck dealer Rush Enterprises to an initial public offering in the mid-1990s.
Sandler questioned where LMP will get the money to buy so many stores and whether the management team has enough depth. He also said it is impossible to process that many deals in such a short time.
Tawfik has experience quickly building up telecom businesses, which he has sold for hundreds of millions of dollars.
He founded PT-1 Communications Inc., a phone card company acquired in 1998 by Star Telecommunications Inc. for $590 million. Star Telecommunications and PT-1 filed for bankruptcy protection in early 2001. Tawfik also founded Telco Group Inc., which Leucadia National Corp. bought in 2007 for $160 million.
Building a dealership group and selling it off is ultimately a possibility for LMP, Tawfik said.
“We’re looking to aggressively grow it, and we’re opportunistic,” he said. “Would we merge with a current public? Yes, if it made sense.”
LMP began in late 2017 as a vehicle subscription provider, and its “buy, subscribe, sell and repeat” model features a website for online sales and booking subscriptions. It runs a used-vehicle lot in Plantation, Fla. LMP buys used vehicles from auctions or dealerships and new vehicles at fleet prices from automakers and then offers them for subscription, or what Tawfik calls a flexible lease. The company then sells the vehicles coming off subscription. Tawfik said the business model generates a better margin than simply selling a vehicle.
Going forward, LMP’s strategy includes bolstering its digital retailing capabilities and integrating inventory from brick-and-mortar outlets into an online superstore.
In December, Tawfik took the company public through a traditional initial public offering. LMP completed another stock offering in February, with the two rounds generating $27.8 million.
If LMP were to get to 50 dealerships, Tawfik said, annual revenue would grow to as much as $6 billion — a huge jump from 2019’s $10.9 million in revenue. He said last week that adding 30 to 40 dealerships in 2021 could translate to up to $77 million in net income for the year.
The company, which is not rated by major Wall Street analysts, said it is pursuing mostly domestic- and import-brand stores in the Southeast and Northeast. It generally wants the selling dealer to stay on as dealer principal and retain a 15 to 40 percent ownership stake in acquired stores, with 25 percent as the “sweet spot,” Tawfik said.
LMP’s first acquisition deal, announced in mid-July, is Toyota of Newnan outside of Atlanta. LMP agreed to pay $27 million for a 75 percent stake and said the store generates about $100 million in annual revenue and $5.6 million in pretax income. Owner Walt Gutierrez declined to comment.
The deal, which doesn’t include property, is subject to securing financing and obtaining approval from Toyota Motor Sales USA and Southeast Toyota Distributors. LMP said it expects the sale to close in October or November.
LMP last week announced agreements to purchase two Florida Kia stores; Bachman-Bernard Chevrolet-Buick-GMC-Cadillac in Greenville, Tenn.; and 85 percent stakes in Kia, Hyundai, Chevrolet, Buick-GMC and Subaru dealerships and three used-only stores in West Virginia.
The West Virginia stores will cost about $17 million, including real estate, while the Tennessee store’s cost is about $7.5 million with real estate, Tawfik said.
LMP is buying the Florida Kia dealerships, in Port Charlotte and Cape Coral, from Fuccillo Automotive Group for $36 million, plus $33 million in real estate. Tawfik said the sites include 58 acres for reconditioning, service and storage for 3,000 vehicles, which is key to the company’s online vehicle sales fulfillment strategy. The Florida stores are expected to add about $210 million in revenue and $7.1 million in net income.
The deals announced last week are all subject to automaker approvals and targeted to close by year-end. In addition to borrowings and cash reserves, Tawfik said last week that LMP could also sell more stock to raise money for the acquisitions or issue stock to dealership sellers.
Representatives with Bachman- Bernard, and a co-owner of at least some of the West Virginia dealerships declined to comment.
Tawfik said the dealer principals and management will stay on at the Toyota and West Virginia stores. LMP will name dealer principals for the Tennessee and Florida stores.
LMP, which will compete with big public groups looking to grow and private groups with more cash, has its work cut out for it, several auto retail experts said.
“The whole space is highly fragmented,” said David Whiston, an analyst with Morningstar. “If you want to get big, you have to acquire a lot of dealerships and that’ll take time and money.”
George Karolis, president of Presidio Group, a dealership advisory firm, said acquirers can “face hurdles with approvability if they don’t have the operating or ownership criteria.”
Sandler described Toyota as particularly difficult for newcomers to receive approval.
Representatives for both Toyota and Southeast Toyota Distributors declined to comment, as did those for General Motors, Kia Motors America and Hyundai Motor America.
Tawfik said he has two employees exclusively working to win automaker approvals and that LMP continues to add employees, including experienced dealership operators.
LMP is building a small executive team that includes Brian Finnegan as franchise dealer executive manager. Finnegan, who joined in July, is a former dealership general manager, former contract trainer for dealership giant AutoNation Inc. and owner of training firm Advanced Dealer Concepts. Tawfik said Finnegan is no longer running his training company.
B. Richard Aldahan also joined in July as COO to help with automaker relationships and approvals.
Aldahan just sold Nissan of Streetsboro in Ohio, Tawfik said. Aldahan has experience at Toyota, Chevrolet and Hyundai dealerships and told Automotive News he has purchased and operated seven dealerships in his career.
LMP also has lost a few key leaders. Former CFO Bryan Silverstein left in April, as did board member Keith Locker. LMP in June hired William Myers, formerly CFO at TravelCenters of America, as CFO. A month later, LMP said Myers decided not to join the company.
Tawfik, who holds some 40 percent of the company’s stock, said he hopes to announce a new CFO and other leaders soon. He also aims to expand LMP’s four-member board that includes industry veteran Bob Morris, a director with buy-sell firm Tim Lamb Group.
Meanwhile, LMP continues to review new acquisition targets, he said.
“As soon as we break that ice and are a known entity in the franchise dealer and [as] public franchise dealership operators, we believe we’re going to build more momentum,” Tawfik said. “And we are deal makers.”
Amy Wilson contributed to this report.