Advance Auto Parts has entered into a definitive agreement to acquire Raleigh, NC-based General Parts International (GPI) in an all-cash transaction with an enterprise value of $2.04 billion. The deal has been approved by both companies’ boards of directors. The transaction is subject to regulatory approvals and customary closing conditions. It’s expected to close in late 2013 or early 2014.

The move is transformational. It would create the largest automotive aftermarket parts provider in North America. The combined business would have 5,264 company-operated Advance Auto Parts and Carquest stores in 49 states and Canada; 1,418 independent Carquest locations in the United States and Canada; 102 WORLDPAC branches; and 50 distribution centers.

For a moment, consider the businesses separately …
• Advance has 4,018 stores in 39 states — 86 percent of which are in the eastern half of the United States. It also brings 12 distribution centers to the table.
• GPI has 1,246 company-operated Carquest stores coast-to-coast to go with 1,418 independent Carquest locations in the United States and Canada, as well as 102 WORLDPAC branches. GPI has 38 distribution centers.
• Roughly 60 percent of Advance’s business is on the DIY side, with only 40 percent in commercial.
• GPI’s breakdown is 10 percent DIY and 90 percent commercial.
• Combined, this works out as 45 percent DIY and 55 percent commercial. That’s a significant change.

You can see why acquiring GPI was so compelling to the team at Advance. It expands Advance’s geographical presence in the Western United States and into Canada, giving the company immediate coast-to-coast market coverage. It also gives the company more commercial capabilities and more channels of distribution.

The plan is to expand Carquest’s key capabilities (including daily replenishment and customer loyalty programs) into Advance stores, while expanding Advance’s DIY capabilities into select company-operated Carquest stores.

The transaction also expands Advance’s platform to include the independent customer channel, as well as the fleet, heavy-duty, government and paint business. It also builds on the company’s commitment to national accounts like Sears and large-bay garages.

“The combination of WORLDPAC and our Autopart International businesses solidifies our position of market leader in import parts,” said Advance CEO Darren Jackson on an Oct. 16 conference call. “In addition, it will create an unparalleled commercial e-commerce engine through the market-leading WORLDPAC [SpeedDial] and Carquest [WebLink] B2B platforms.”

But, how does it all fit together?

“As a part of our preliminary integration plan, we expect to continue to operate WORLDPAC independently, to continue to service Carquest independent customers under the Carquest brand, and to individually assess Carquest company-operated locations and determine where it makes sense to convert or consolidate those locations into Advance Auto Parts,” Jackson explained. “We will provide additional details post-close as we continue to evaluate and to refine our integration strategy.”

It’s also important to note that GPI’s leadership team is expected to remain with the company post-transaction. This includes O. Temple Sloan III of GPI, who will continue as president of GPI, reporting to Jackson. It is expected that Sloan will join the Advance board of directors as well.

Also staying on, according to the Oct. 16 conference call, are David McCartney, president – Carquest U.S.; Steven Gushie, president – Carquest Canada; and Robert Cushing, president – WORLDPAC.

In bringing all of this together, the management of Advance will rely heavily on its own team, the talent it acquires along with GPI/Carquest/WORLDPAC, and its own experience in integrating acquired businesses. On this last point, Advance finds itself in the unique position of having been able to try Carquest on before buying.

Advance and GPI have parallel histories. “Both organizations have successfully grown through acquisitions and greenfields, supported by our outstanding team members,” Jackson said on the call. “More importantly, we recognize that our two companies share a common set of values and approach to the business. That is critical for this combination to succeed, and it will.”

“Our confidence and our conviction is in large part the result of our December 2012 acquisition of BWP. BWP was the second-largest operator of owned and independent Carquest stores. Over the past 12 months, we have been building deeper relationships with General Parts, while gaining valuable insights and experience on the numerous operational strengths through the BWP integration. This experience will provide us with immediate, mutually leveragable advantages during the larger integration process. The bottom line is that we already know this relationship works.”

Jackson emphasized that strategic acquisitions have been a key part of the growth story at Advance. “We have a proven track record of successfully integrating and growing acquired companies. They include Western Auto, Discount Auto Parts, Autopart International, BWP and others,” he explained. “We expect the General Parts acquisition will be no different.”

The combined company will be headquartered in Roanoke, VA and will continue to maintain a presence in Raleigh, where GPI is based.

Advance intends to finance the acquisition through a combination of senior notes, bank debt and existing cash on hand. Following the transaction, Advance expects to continue to have a solid balance sheet, supported by the strong cash flow of the combined business.

In connection with the transaction, Advance has received a financing commitment from JPMorgan Chase Bank, N.A. with the senior notes offering and bank debt syndication expected to occur prior to closing.       — Marc Vincent