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Advanced Auto Parts Spends $2 Billion to Become Biggest Auto Parts Retailer in North America

By  +Follow October 16, 2013 8:43AM
Tickers Mentioned:

Advanced Auto Parts (AAP) is making a move to become the biggest player in the North American auto parts industry, saying on Wednesday that it has agreed to acquire privately held General Parts International, Inc. in an all-cash deal with an enterprise value of $2.04 billion. With the purchase, Advanced Auto Parts will add 1,246 corporate-owned stores and 1.418 independently owned Carquest locations, giving it a platform and scale across the continent. General Parts also owns Worldpac, a supplier of replacement parts for imported vehicle brands.

The merge company will have annual sales of $9.2 billion, edging past current leader AutoZone Inc. (AZO) , which recorded about $9 billion in sales for the year ended August 31.

Advanced expects the acquisition will result in about $160 million in annual run-rate synergies that will be realized three years after closing.  The company also expects increased free cash flow and deliver estimated fiscal 2014 earnings per share accretion in excess of 20 percent, less one-time expenses.

Both boards have approved the transaction, which is expected to close late this year or early in 2014.

O. Temple Sloan, III, is expected to join the board at Advanced Auto Parts and will retain his position as president of General Parts, reporting to Advanced chief executive Darren Jackson. The combined company will remain headquartered in Roanoke, Virginia, the current home of Advanced, although it will keep its presence in Raleigh, North Carolina (General’s headquarters) as well.

“This transformational transaction provides a compelling strategic opportunity for Advanced to expand our geographic presence and commercial capabilities to better serve customers,” said Jackson in a statement this morning.

“The combination with Advance Auto Parts is the next logical step in our company’s evolution. Advance’s retail presence, strong capability infrastructure and acquisition integration experience combined with GPII’s leadership in the commercial, independent and import segments creates a powerful platform to drive profitable growth,” added Sloan.

Advanced has bought its way to become the biggest auto parts player in North America to offset tepid sales as booming auto sales are keeping fewer people from needing replacement parts.  In December the company bought BWP Distributors for an undisclosed cash amount.  As part of that deal, Advanced picked-up 124 BWP company-owned stores transferred the rights to distribute to 92 independently owned locations to an affiliate of General Parts.

Wall Street is cheering the acquisition, sending shares of AAP roaring ahead 16 percent to $96 in morning trading, including printing a new to all-time high at $99.30.  Through Tuesday’s close at $82.50, shares were up about 15 percent so far in 2013.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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By  +Follow October 16, 2013 8:43AM



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