China Grand Auto in talks with Sanroad

China Grand Auto, the second-largest domestic car dealer measured by revenues, is eyeing an acquisition that is still under negotiations.

The distributor has been in talks with Sanroad to buy the second-largest auto sales company in Sichuan province for about 1.4 billion yuan, according to local media reports.

The deal hasn't been finalized as both sides are declining to talk publicly about it.

China Grand Auto sold more than 410,000 vehicles last year and reaped over 63 billion yuan in revenues, according to its Website. The dealer operates nearly 400 4S shops (authorized franchises offer sales, spare parts, services and surveys) across the country.

A success story in the energy and real estate sectors, its parent company, Xinjiang Guanghui Industry Investment Group Co Ltd based in Urumqi, got into auto sales and services in 2001 and expanded rapidly by acquiring leading local dealerships in the Guangxi Zhuang autonomous region and Henan province.

China Grand Auto was registered in Guilin, Guangxi in 2006 and grew into a sizable group by taking over dealerships in various provinces and cities such as Hebei, Anhui, Gansu and Chongqing.

It is seeking an initial public offering to finance future acquisitions and expansions. The company is backed by the US private investment firm, TPG, which owns 42 percent shares while Xinjiang Guanghui is the biggest shareholder.

China Grand Auto has just a small margin of revenues less than the Shanghai-listed Pang Da Automobile Trade Co. If the acquisition of Sanroad succeeds, it could become the top car dealer in the nation.

Domestic auto dealers are fragmented and a trend has developed for successful dealerships to expand through mergers and acquisitions, analysts said.

According to statistics of the China Automobile Dealer Association, the top 100 dealerships in China account for just 21 percent of market share.

A guideline issued by the Ministry of Commerce last December called for more consolidation with a target in 2015 to have three to five large dealerships that hold revenues of over 100 billion yuan and 30 regional dealers with revenues of over 10 billion yuan.

The top-ranked 100 dealers should account for at least 30 percent of the market share by then, the document said.

The luxury car dealership China Zhengtong Auto Services Holding Ltd that ranks just No 20 in the industry, acquired the ninth-biggest domestic auto dealer - SCAS Investment Co Ltd - for 5.5 billion yuan last September, marking the largest acquisition in recent years.

Additionally the Hong Kong-listed Zhengtong had succeeded with three smaller takeovers last year at a combined payment of up to 534 million yuan.