In 2013, China became the first country to sell more than 20 million vehicles in a year. But when Mark McLarty got there in 2004, it wasn't the world's leader in auto sales — it was a frontier.
One of McLarty's ventures, China Grand Automotive Services Co. of Shanghai, was recently sold by TPG Capital of Fort Worth, Texas, a partner of McLarty's, for nearly $785 million to Haitong International Securities Group Ltd. of Hong Kong.
For its seven-year investment, TPG cleared $697 million, leaving the remaining $88 million for McLarty and his co-investors.
While the venture more than paid off, when McLarty entered the market back in 2004, China was nowhere on the auto industry radar. There was no dealer network. In many instances, when a person was interested in buying a car, the trip to the nearest dealer was hundreds of miles, and in some cases, in another province. And instead of being know for high sales, those dealerships were known for corruption, unprofessionalism and poor management.
Still, it was the size of the country, the developing middle class, increased education and an urbanization shift that attracted McLarty to China.
"All those factors go into a higher ownership of vehicles," he said.
For McLarty, who took trips to China and studied trends, all signs pointed to an exploding market for auto sales.
"At the time, it was hard to believe," he said. "Most people were on mopeds and bikes, or walking. Then, you have charts from BMW saying lots of them will be driving German luxury cars. It makes you scratch your head."
To make the most of the opportunity, McLarty felt the need to find a partner. Enter TPG Capital.
"China, back 10 to 15 years ago — and it hasn't changed much today — is not for the faint of heart," McLarty said. "It's difficult for westerners to operate. I felt like I needed a partner that knew the landscape because I hadn't operated there, and neither had my family. I had connections, but there weren't many."
McLartys are known for their success in the automotive dealership industry. Mark is one of the sons of Thomas F. "Mack" McLarty, whose family has been in the automobile dealership business since 1921, and who has his own dealership holdings.
For that reason, it takes quite a change of scenery for someone in the industry to not immediately recognize the name.
But that's what happened to Mark, the fourth generation of the McLarty name, while pitching to Ford in Shanghai, China.
"I was talking to them about being a dealer, they only had a handful at that time," McLarty said. "And there's an older guy, nearing retirement, that just asks, 'Who are you?' I explained, and said my grandfather was a Ford dealer back in the 1920s. He squinted at me, and said, 'McLarty, right? I think I knew your grandfather. Is his name Frank?'
"Here I am in this Ford factory in Shanghai," McLarty said, "it was surreal, talking about [the Hope Auto Co.]."
'When We Started, There Was Nothing'
McLarty pitched to a few different groups, but it was TPG that was the right fit. Quickly, he was offered a full-time spot and became embedded in Hong Kong, exploring investment strategies.
In the beginning, there was McLarty and what he called a "dedicated team," which handled mergers and acquisitions.
"When we started, there was nothing," he said.
McLarty said he and his team combed the country, looking for acquisition targets. Then, most everything was state-owned or had just been privatized. Either way, a mess ensued, including corruption and employee theft.
TPG became linked with a Chinese partner in Ürümqi, the farthest major city in the west of the country. The company, which had a monopoly on car distribution in the area, had gone bankrupt. TPG invested $106 million into the firm — which at the time was by far the largest investment by a foreign company — and also acquired two state-owned companies, also bankrupt. The move netted TPG about 65 dealerships, and McLarty was named CEO.
In many cases, McLarty said the company was buying land for dealerships before the government's plans for development came to fruition. Many trips to view land included trips down a dirt road to stare at an endless corn field, the site of a future car dealership.
"It would have been like building on the corner of I-630 before Chenal," McLarty said. "People would have thought you were crazy."
But it never failed. By the time a dealership was nearing completion, it would be surrounded by high rises and other kinds of development.
The Decision to Sell
It had been rumored for years that TPG had plans for an IPO with China Grand, but McLarty said regulatory and government approvals, paired with a weak market meant the timing never made sense.
TPG also wanted to realize the full monetary benefit of its investment. In China, going public requires a three-year lockup before being able to monetize.
"Being able to sell and receive 100 percent in cash, it was attractive," McLarty said.
McLarty, whose overseas endeavors began in 1999 in Brazil, still has business interests there, along with Mexico and China. After his time with TPG, McLarty was chairman and CEO of YanJun Automotive, leading it to expansion in north China. The company opened Porsche, Jaguar, Land Rover and Volvo dealerships before it merged with Baoxin Automotive of Shanghai. He remains a shareholder in Baoxin Automotive.
In Mexico, he's the founder and chairman of GDV Imports, the sole distributorship for Jaguar Land Rover.
While he obviously still has interest in the international scene, the lion's share of his attention is back in the United States. McLarty recently acquired Bale Honda in Little Rock, which will now operate as Landers-McLarty Honda, with Steve Landers Jr. overseeing day-to-day operations.
McLarty said he's actively looking at other locations in Arkansas.
"None of these will be in a corn field in the middle of nowhere," he said.