By Dana Cimilluca
Advance Auto Parts Inc. (AAP) agreed to buy General Parts
International Inc. for just over $2 billion in cash, a takeover
that would create one of North America's largest aftermarket
auto-parts providers.
Advance Auto shareholders greeted news of the deal
enthusiastically, sending the company's stock up as much as
19%.
The deal would create a company with $9.2 billion in annual
sales, comparable in size to the market's current biggest player,
AutoZone Inc. (AZO) Advance Auto has about $6 billion in annual
sales, with some 4,000 locations selling everything from batteries
and air fresheners to pneumatic tools and engine parts--to both
individuals and commercial buyers. Closely held General Parts has
some $3 billion in annual sales, with about 2,600 Carquest
locations--1,200 company-owned and 1,400 independent.
The deal would enable Advance Auto to penetrate more deeply into
the bigger and faster-growing commercial auto parts market, which
includes professional mechanics and from which the company
currently gets about 40% of its sales. With cars becoming more
sophisticated and complex, and with increasing amounts of
electronics in them, more auto parts are being sold through that
channel as opposed to so-called do-it-yourself buyers.
Raleigh, N.C.-based General Parts derives a greater proportion
of its sales from commercial customers, and the deal is expected to
boost the percentage of Advance Auto's sales coming from that
segment to roughly 55%, according to people familiar with the
matter.
The industry has also been buffeted by a weak economy, and the
General Parts deal could help Advance Auto better cope with that by
giving it greater scale and the scope to cut costs. Advance Auto
operates in 39 states, Puerto Rico, and the Virgin Islands and the
acquisition is expected to fill out the company's footprint in the
U.S. and Canada and lead to annual cost savings of roughly $160
million within three years.
The company also announced preliminary results for its third
quarter Wednesday. While Advance Auto's sales for the period came
in at $1.52 billion, a jump of 4.3% from the same period a year
earlier, the increase was due in part to an acquisition and other
store additions; comparable-store sales decreased 2%.
Despite the economic challenges, Roanoke, Va.-based Advance
Auto's shares have performed well and were up 21% in the past year
through Tuesday. The company's stock rose 17% on the New York Stock
Exchange Wednesday morning to $96.36, giving it a market
capitalization of $7.1 billion. The stock earlier leapt to $98.26,
for a gain of 19%.
The deal would be the latest in a recent surge of retail
M&A, as companies in the sector seek to fortify themselves in a
difficult environment by combining to strip out costs, among other
benefits. So far this year, $28.2 billion of U.S. retail merger
deals have been struck, more than double the $12.8 billion total in
the same period last year and the largest year-to-date tally since
2006, according to Dealogic.
General Parts was founded in 1962 by Chairman O. Temple Sloan
Jr. His son, O. Temple Sloan III, is currently president and is
expected to stay with the combined company.
Besides Carquest, General Parts also owns Worldpac, a big
wholesale player in the faster-growing import market.
The deal would represent an about-face of sorts for Advance
Auto, which was exploring a sale of itself, people familiar with
the matter said late last year. Private-equity firms were
considering a buyout of the company, one of the people said
then.
The combined company's cash-flow generation is expected to
enable Advance Auto to maintain its investment-grade credit
rating.
Write to Dana Cimilluca at dana.cimilluca@wsj.com
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