ROANOKE, Va. – Advance Auto Parts has entered into a definitive agreement to acquire General Parts International Inc.(GPI), a leading privately held distributor and supplier of original equipment and aftermarket replacement products for commercial markets operating under the CARQUEST and WORLDPAC brands. The business is being acquired in an all-cash transaction with an enterprise value of $2.04 billion. The transaction has been approved by the boards of directors for both companies. 
The deal creates the largest automotive aftermarket parts provider in North America, with annual sales of more than $9.2 billion and more than 70,000 employees. Advance says the strong combined financial profile allows for an all-cash transaction and supports its commitment to maintain its investment grade rating. The acquisition of GPI will accelerate Advance’s growth strategy and enhance shareholder value through the following strategic benefits:
• Creates Market Leader – (1) No. 1 automotive aftermarket parts provider in North America with a balanced platform for growth between Do-It-yourself (DIY) and Commercial, (2) No. 1 distributor of import automotive parts and (3) the largest automotive aftermarket business-to-business e-commerce platform in North America.
• Delivers Scale – Provides Advance with complete coast-to-coast coverage across North America, creating a company with scale, reach and expanded growth opportunities benefiting shareholders, customers and team members. This presence in new markets allows Advance the ability to expand its geographic footprint in an efficient manner.
• Accelerates Complementary Market Opportunities – Expands Advance’s product and category offerings in both core and new product lines (i.e. paint and heavy-duty), creates new sales channel with independent customers and broadens ability to grow with attractive customer segments such as larger bay garages, import specialists, national accounts and fleet and government programs.
• Strengthens Leading Brands and Capabilities – Enhances Advance’s ability to serve customers through the transfer of CARQUEST’s commercial capabilities and team member parts knowledge into Advance stores while expanding DIY into select company operated CARQUEST stores. The combination expands key capabilities in customer service through enhanced daily replenishment and customer loyalty programs to a larger truck fleet and a significantly expanded commercial sales team.
According to Advance CEO Darren Jackson, Temple Sloan III, president of General Parts International, will continue as president of GPI, reporting to Jackson and is expected to join the Advance Auto Parts Board of Directors as well. The combined company will be headquartered in Roanoke, Va., and will continue to maintain a presence in Raleigh, N.C.
Jackson said, “This transformational transaction provides a compelling strategic opportunity for Advance to expand our geographic presence and commercial capabilities to better serve customers. The addition of 1,246 company operated stores and 1,418 independently owned CARQUEST locations provides us with an immediate platform and scale across North America, full market coverage and the opportunity to position ourselves as the market leader in the commercial business. We believe the combination of the two companies is a great fit and the synergy of GPI’s assets with our capabilities will allow us to capitalize on market opportunities that will create value for our shareholders and provide even better service to our customers. We welcome and look forward to working with the talented leaders and team members from GPI.”
Sloan added, “We are excited to bring together two highly complementary automotive aftermarket companies. 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 GPI’s leadership in the commercial, independent and import segments creates a powerful platform to drive profitable growth. With a more robust offering and a shared focus on best-in-class customer service, our combined business will continue to deliver value for customers and shareholders.”
Financial Benefits
Advance anticipates that the transaction will result in approximately $160 million of annual run-rate synergies to be fully realized within three years after closing. The transaction also is expected to generate considerable free cash flow and deliver significant estimated FY14 Cash EPS (1) accretion of more than 20 percent excluding one-time costs to achieve synergies and a percentage increase in the low teens including one-time costs to achieve synergies.
Advance Auto Parts 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.
Mike Norona, CFO of Advance Auto Parts, said, “This strategic transaction presents an exciting opportunity for value creation and Advance is dedicated to delivering on the compelling financial potential this combination creates while remaining committed to maintaining our investment grade credit rating.”
The transaction is subject to regulatory approvals and customary closing conditions and is expected to close by late 2013 or early 2014.
