Why LMP Automotive’s dealership acquisition target is running out of steam
LMP “has not incurred any material termination penalties as a result of this termination”, it’s written in the file. This The purchase agreement included a $250,000 earnest money deposit, according to an August regulatory filing, and it was unclear as of last week who received that money. J. Chantz Scott, CEO of Chantz Scott Auto Group, did not respond to requests for comment.
In a regulatory filing on Friday, LMP said its $29 million agreement to buy property in Elmsford, NY, to relocate and expand one of its dealerships in New York was terminated. LMP, in the filing, said the termination of the agreement did not include any “material termination penalty.”
Whether LMP will lose earnest money deposits in other transactions that are removed – with at least one seven-figure deposit – is murky, as it depends on the specific contingencies of each agreement and whether or not of a default, according to dealer attorney Leonard Bellavia, a partner at the Bellavia Blatt law firm in Mineola, NY
Tawfik and LMP chief operating officer Richard Aldahan did not respond to requests for comment, nor did the company’s lead independent director.
Of the pending deals, the largest in terms of roofs included the purchase of an 85% stake in 10 new vehicle dealerships, a used car center and a fleet operations outlet. Alan Jay Automotive Network in Florida. LMP was going to pay $50 million for dealer goodwill and about $44.1 million for real estate.
Seller Alan Wildstein declined to comment, as did Ryan Kerrigan, the seller’s broker and managing director of sales firm Kerrigan Advisors in Irvine, California.
Another of his pending deals was the planned $9 million+ purchase of Kia of East Hartford, Connecticut from Joseph Klimas Jr. and K&W Enterprises.
Broker Gordon Wisbach Jr., president of GW Marketing Services in Newton Center, Mass., said Automotive News that his client wants to retire. The deal was originally announced in July and the parties extended the closing date by a few months and agreed to a higher purchase price, Wisbach said. Wisbach declined to disclose that amount.
“It’s a shame because Sam really wants to do this,” Wisbach said. “We enjoyed working with him to buy the store. It’s disappointing that he couldn’t get the financing.”
Wisbach thinks he can find another buyer. And another broker thinks other sellers with canceled LMP offers will be too.
“It’s still one of the busiest times in M&A history,” said Dave Cantin, CEO of Dave Cantin Group, whose firm DCG Acquisitions represented a seller in a deal with LMP that n did not succeed. “With recent historic earnings, all sellers involved in one of LMP’s transactions will hopefully find a suitable new buyer who has the ability to execute a successful close.”
End of December, Tawfik said in a press release that LMP had “engaged Bank of America” to help refinance its debt, and this month said in another statement that LMP was working with “potential lenders to provide the necessary debt financing” for acquire the dealers.
In his Press release this week, LMP said its board believes its stock price is undervalued; Tawfik owns about 35% of LMP shares, according to the company’s December proxy statement.
LMP shares fell 26% from the Tuesday February 15 close before the news at $4.95 on Thursday February 17; a year earlier, shares were trading above $20.
“Some of the big public companies are making very large acquisitions, and that tends to sway investors, but in this case, [LMP] never really had the capital base to be as aggressive as them,” said Sheldon Sandler, CEO of Bel Air Partners, a buy-sell advisory firm in Hopewell, NJ, which wrote on LMP but is not involved in any transaction with the company.
Sandler said if LMP were to sell its existing dealerships, he would expect it could get a good price for them given the overall strength of the buy-sell market.
LMP itself could likely have several suitors, and not just the country’s big six publicly traded dealer groups, said David Whiston, an analyst at Morningstar in Chicago who covers public auto retailers but not LMP. Whiston said auto retail consolidation has created dealer buyers in large and medium-sized private groups.
At the end of September, LMP had $29.7 million in cash, of which approximately $10.9 million was restricted cash.
In the first three quarters of 2021, LMP generated net income of $1.1 million. The company expects to release its fourth quarter results on March 31.
In October, LMP purchased an aircraft, spending around $5.6 million, according to a regulatory file. He signed a five-year, $3.2 million note for the plane, and monthly payments of $32,435 were to begin in December, guaranteed by Tawfik. To help pay for the plane, LMP received $2 million via a line of credit from ST RXR Investments, a related company owned by Tawfik. This line of credit was scheduled to mature on Nov. 21, 2021, and required payment either on that date or on demand, depending on the filing.
It is not clear from the regulatory filing why LMP purchased the aircraft.
“No investor, no lender, is going to look at this plane and think it’s good corporate governance,” said UM professor Gordon. “It’s a bad signal. It’s not #1 – it’s not #10 – good use of money for this company.”