Inchcape acquisition of Derco expected by the end of this year

Inchcape will complete the acquisition of Derco early next year after approval from the Peruvian authorities.

The car dealership chain has agreed to spend £1.3 billion to take control of Latin America’s largest independent car distributor, whose market share in the countries where it operates is nearly 20 percent.

Approval for the acquisition has already been given by Chilean and Colombian regulators and the company’s shareholders, who voted overwhelmingly positive at a general meeting last week.

Inchcape said on Friday it had now received the green light from authorities in Peru, passing the latest regulatory hurdle, and expects to close the deal sometime later this month.

The London-based company has argued that America is an attractive destination to pursue growth, due to low car ownership, favorable demographics and expectations of solid GDP growth per capita.

It predicts the transaction will generate a minimum of £40 million in annualized synergies and will be more than 20 per cent accretive to earnings per share from the second year following the acquisition.

The news came as figures from the SMMT showed an increase in new car production in the UK, although pre-pandemic levels remain at around 35 per cent.

Duncan Tait, CEO of Inchcape, commented, “The combination with Derco is a transformative and unique opportunity to accelerate our global distribution business.

“In addition to delivering substantial shareholder value, the acquisition presents exciting opportunities for our colleagues, OEM partners, dealers and consumers, and is another great example of Inchcape’s Accelerate strategy in action.”

Founded in 1959 and almost wholly owned by the Del Rio family, Derco operates more than 375 outlets in South America and sells a wide variety of car brands ranging from Suzuki to Mazda, Chevrolet and Citroen.

For the 2021 financial year, the company generated £2 billion in revenue and posted an operating profit of £236 million, following a downturn in trading over the past two years.

Businesses have been hit hard by the imposition of heavy travel restrictions in the wake of the coronavirus pandemic, as well as geopolitical volatility across the region.

Inchcape’s business was similarly impacted by lockdown restrictions before seeing a phenomenal recovery in orders as pent-up demand was released and consumers with extra savings tried to upgrade their engines.

Trading further benefited from a global shortage of semiconductors, forcing manufacturers to reduce car production, driving up prices and margins on both new and used cars.

Despite the deteriorating global economic situation, orders have continued to grow this year, including by 16 percent in the three months ended September.

Reporting its third-quarter results in October, the group said adjusted pre-tax profit would be at the upside or slightly above its previous guidance of £350m to £370m.

Inchcape Shares were 0.5 percent lower at 815 pence by mid-morning on Friday, but have only fallen in value by about 10 percent so far this year.