By
Richard Schwartz, Managing Partner, Schwartz Advisors
LLC

Earlier this year, Schwartz Advisors wrote an
article in aftermarketNews where we speculated that the M&A market in the automotive
aftermarket would continue to be strong in 2013. In April of this year, we
wrote, “We expect to see M&A activity this year in distribution and some
supplier segments of the aftermarket, which will be driven by opportunities to
consolidate and gain efficiencies.”

As expected, there have been some acquisitions
across different segments of the aftermarket this year. Earlier this week came
the blockbuster announcement that Advance Auto Parts (AAP), a leading
automotive aftermarket retailer of automotive parts and accessories is going to
acquire General Parts Inc. (GPI), the parent of CARQUEST and WORLDPAC. The GPI
acquisition will create the largest automotive aftermarket parts provider in
North America and has the potential to change the automotive aftermarket
landscape for retailers, distributors and suppliers. More specifically, this
acquisition will have an impact on the retail, traditional parts distribution
and import parts distribution segments.

Are
you prepared for what is coming next?

While we may not know exactly what is in store in
the future, most of us would probably agree that a crystal ball is not needed
to come to the conclusion that aftermarket merger activity will continue. At
Schwartz Advisors, we expect to see further M&A activity as suppliers and
distributors look for competitive advantages and strategic benefits from
consolidation. Increased efficiency, improved sourcing and supply chain
capabilities and market share gains are common reasons for making acquisitions.
The press release announcing the GPI acquisition cited several strategic
reasons including:

· Create a market leadership position for
both the retail and commercial segments

· Create scale in terms of growth and ability to
leverage supply chain efficiencies

· Leverage brand leadership capabilities

Near-term merger activity in the next six to 18
months will be driven by favorable trends that will attract interest from both
private equity and strategic investors. Macroeconomic trends, including stable
interest rates and access to debt, will help buyers finance acquisitions.
Industry factors, including the size of the vehicle fleet in the United States
and the aging fleet, correlate to the need for replacement parts along with
opportunities in all repair and service segments.

M&A activity is not the only answer to
growing your business, but it can be an important tactic in your strategic
growth plan arsenal. Aftermarket executives need to be vigilant in
staying abreast of how acquisitions can help companies achieve strategic
objectives more efficiently. If you don’t have an M&A strategy, we highly
recommend that you develop a thoughtful plan for how your company might grow
and how to improve performance through acquisitions.

Some of the more successful aftermarket
businesses have avoided M&A activity and focused instead on running their
businesses. However, as we look ahead even companies that have track
records for profitability and efficiency will need to anticipate the future and
determine if now is the time to start considering implementation of an M&A
“game plan.” Remember, acquisitions almost never happen immediately and most
acquisitions take time to nurture before coming to fruition. Therefore, it is
better to start sooner rather than later.

The Advance Auto Parts acquisition of GPI may not
be the last deal that will take place this year in our industry. Looking ahead,
we expect 2014 to offer plenty of opportunities to implement strategic growth
initiatives that include acquisitions. Make sure you are prepared – even if you
choose not to aggressively look at acquisitions.

M&A is not the only path to growth. However,
be prepared for strategic opportunities to create a defensible market share
position, expand your own scale and efficiency and leverage your company’s core
competencies through carefully considered acquisitions.

Richard Schwartz is Managing Partner for Schwartz
Advisors, a merger and acquisition adviser and consulting firm to companies
in the automotive aftermarket. For information, visit www.schwartzadvisors.com, email: [email protected] or call (858) 768-2623.