by Amy Antenora
CHICAGO — “You can hardly pick up a newspaper without reading about the multi billion dollar funds buying up everything, everywhere, in every country,” said Dan Smith, president of Capstone Financial Group. Smith led a panel discussion on private equity at the 2008 Global Automotive Aftermarket Symposium in Chicago.
The panel included execs from three private equity firms currently investing in the automotive aftermarket. Panelists included Paul Cifellin of Kinderhook Industries, which owns Extang, Truxedo, Blitz, KN Rubber, Carry-on Trailer and used to own Mr. Gasket; Kristin Newhall, partner, The Riverside Co., which owns JC Whitney, Stylin’ Concepts, Harmon AutoGlass and used to own APC, Axiom, Dynojet; and Jeremy Thompson, partner, at ONCAP in Canada, which owns Mister Car Wash.
An industry born in the early 1980s, private equity was built from funds raised from pension funds, insurance companies, endowments and high net worth individuals. Currently private equity has $130 billion in capital overhang. Private equity firms typically buy platforms and add-on acquisitions, invest for five to seven year periods, seeking returns that are higher than the stock market. They typically exit businesses through a sale or IPO.
Today, however, the size and variety of private equity firms and their investments can vary dramatically, Smith said. The structure of private equity deals has also changed greatly. Private equity firms are now buying majority interests, making minority investments, subordinated debt investments and some are doing all of the above
Why is private equity targeting the aftermarket?
“Honestly, it’s hard to find an industry whose demographics are better,” said Smith. “The demographics, both human and vehicle, are almost perfect.”
Panelist Jeremy Thompson added that they also like the stability of the aftermarket, which doesn’t go up and down as much as the number of new vehicles sold does from year to year. “Great cash flow characteristics are strong in the industry and the diversity of customer or geography is also something we’re looking for,” said Thompson.
Private equity has played a big part in the industry consolidation that has taken place the last few years, Smith said. There were 53 private equity transactions in the aftermarket last year, an increase from previous years, said Smith. The aftermarket has been transformed by a vast amount of private capital, both foreign and domestic.
The effects of private equity’s increased presence in the aftermarket is broadening distribution and giving manufacturers the ability to say no to customers. Financial buyers have a widening scope, crossing distribution lines and morphing into strategic buyers.
