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What: Shares of Lithia Motors (NYSE:LAD) gained more than 12% Monday after the car dealership chain announced the acquisition of DCH Auto Group.
So what: Lithia said it would pay $362.5 million to take control of DCH, which gives the buyer 27 additional dealerships in California, New Jersey, and New York, bringing its grand total to 128. Management expects the new locations to deliver additional income of $0.12 to $0.14 per share this year, and $0.65 to $0.75 per share a year after that. DCH's management team will remain in control of the DCH stores, and the deal is expected to close in the fourth quarter of this year.
Now what: In its press release, Lithia explained that the new dealerships will help it build out its metro market strategy with dealerships in the New York and Los Angeles areas. Prior to the DCH acquisition, Lithia had no presence on the East Coast, and Lithia CEO Bryan DeBoer called DCH an "ideal strategic partner" for the eastern United States. Considering the impact the new stores are expected to make, the deal seems like a smart move, as DCH should add close to $20 million in profit per year. The DCH acquisition is just the latest purchase for Lithia, which a few days earlier added two dealerships in Portland, Oregon. Don't be surprised to see the company pick up some more new stores in the near future.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.