Consolidation hopes boost Vertu

Consolidation and performance improvement potential in a highly fragmented motor retail market underscore prospects at Vertu Motors. Conceived by youthful but high-profile industry figure Robert Forrester, Vertu floated as a shell in December alongside an oversubscribed £25 million funding at 60p, and has swiftly become the 11th-largest dealership in Britain through acquisitions.

Vertu’s strategy is to play a role in the ongoing consolidation of the £40.3 billion, target-rich UK motor retail industry, with a focus on the volume rather than the specialist end of the market. By way of illustration, there were 5,400 dealerships in the UK in 2005 and the top ten largest groups represented less than 19 per cent of the market, so there’s plenty to play for.

In February, Forrester, who was managing director at industry giant Reg Vardy before its takeover by Pendragon in early 2006, announced the £40 million acquisition of well-regarded brand Bristol Street for £31 million in cash and up to £9 million in shares.

Profitable to the tune of £5.1 million last year, operating from 35 sites and boasting good ties with manufacturers such as Ford, Peugeot and Hyundai, Bristol Street sells new and used volume cars and offers commercial vehicle sales and after-sales services. Bristol Street brought both a brand and an acquisition platform to Vertu, as well as an alluring freehold property portfolio. The acquisition also delivered influential industry figure Paul Williams into the boardroom as non-executive chairman.

In May, a second, smaller acquisition was completed, with Vertu buying Blakes for £4.9 million in a predominantly cash-based deal swelling the number of outlets to 39. Operations include a Vauxhall dealership in Chesterfield and a Vauxhall service centre in Matlock, as well as Peugeot dealerships in Chesterfield and Worksop, and these businesses will be rebranded as Bristol Street. Forrester sees a strong strategic and geographic fit with the group’s existing operations and brand.

‘Historically Blakes has underperformed,’ admits Forrester, ‘but we can improve its performance by doing the basics well. We will implement better selling, better customer service and an improved internet presence.’

With both Bristol Street and Blakes, Forrester will look to drive better financial controls and disciplines, assisted by finance director and former Reg Vardy colleague Karen Anderson. Across the group, the plan is to double used car sales in order to ‘improve the used to new car ratio’, thereby mitigating the business from interest rate risk. Used car sales are far less influenced by interest rate rises than new car sales and feed through strongly to the aftermarket, which isn’t exposed to rate fluctuations, since people always need parts and repairs.

‘Although new registrations have been strong in the first four months of 2007, the new car market has been in the doldrums for two years,’ says Forrester. ‘If we can double used car sales, we’ll insulate the business from rising rates to a degree.’

With institutional supporters including blue-ribbon names like Global Asset Management, UBS and F&C, Vertu already has an impressive City fan club and has the financial firepower to complete further sensibly priced, profitable deals.

Management strength in depth is also evident, with Forrester having ‘put together a top-class team that could handle 65 dealerships’. Admittedly it’s early days, but deals completed to date excite and, in the longer term, the group could even become a target for one of the sector’s more sizeable players.