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article imageAdvance Auto Parts pays $2 billion to acquire Carquest chain

By Jenna Cyprus     Oct 28, 2013 in Business
Advance Auto Parts isn't content at being one of the biggest auto parts suppliers in the country. The company wants to have the title on the top spot through a multi-billion acquisition.
Reuters announced last week that Advance Auto Parts Inc. will buy more than 1,400 outlets of Carquest, a car parts and auto repair shop chain, in a purchase that's valued at approximately $2 billion. This acquisition will make Advance Auto Parts one of the top automotive retail and parts companies in the US, on the basis of sales and store count.
Advance Auto Parts itself reported about 3,800 stores in 40 states and more than 55,000 employees in January 2009. General Parts International, Inc., the parent of Carquest, has 500 workers at its headquarters. Advance spokeswoman Shelly Whitaker says that it will be "business as usual for the immediate future," as reported on WUNC 91.5, North Carolina Public Radio.
The acquisition means that Advance Auto Parts will have positioned itself as a key competitor to retail auto parts chain AutoZone. In addition, Advance has also acquired an additional subsidiary of General Parts. GP owns WorldPac.
The reaction on Wall Street
Because of the acquisition, shares of Advance Auto Parts jumped as much as 20% in value, to a record high for the company since going public. The purchase has been positively received by shareholders, mainly because acquisition usually brings an increase in stock value.
In general, US acquisitions of competitors have created monetary benefits for stockholders. On average, US buyers' stock gained 2.3% within a day after the announcement, according to the Wall Street Journal.
With the combination of all three companies, Advance Auto Parts should have annual sales in the range of $9.2 billion. This acquisition bids fair to enable Advanced Auto Parts to take the throne of top automotive parts retailer in North America: Its main competitor, AutoZone, currently has an adjusted 2013 sales revenue of approximately $9 billion, as of August 31.
The acquisition is also estimated to represent $160 million in annual cost savings for Advanced Auto Parts. This purchase will also give Advance a continental customer reach, from east to west coast of North America.
Shifts in the industry
The automotive replacement parts and accessories industry hasn't been without some struggles for companies like AutoZone and Advance Auto Parts. Over the past few years, automotive parts sales have decreased as drivers in the US have chosen to purchase new cars rather than fix their old ones.
Because of this, many automotive parts and repair suppliers are shifting their focus toward commercial sales instead of retail locations that allow the general public to purchase parts like timing belts in their stores. Currently, according to Reuters, 85% of Carquest's sales is from commercial repair companies.
This large percentage of commercial repair business will help Advance Auto Parts increase its commercial sales to 55% of total revenue -- a 20% hike. Overall, Advance Auto Parts is expecting $1.5 billion in revenue for the third quarter in 2013.
Looking to the future
Although the deal awaits federal regulatory approval, Whitaker is estimating it will be approved by early 2014. After the deal is approved, both companies will work together to create a transition plan for employees and the retail store locations. This gradual rollout could happen over a few months or take several years.
Advance Auto Parts is headquartered in Roanoke, Virginia, and was founded in 1932. The company is well known for its technology and training programs, and has donated more than $20 million to the Juvenile Diabetes Research Foundation since 1994.
In addition to AutoZone, current competitors in the field of automotive replacement parts and accessories in the US include O'Reilly Auto Parts and Sears.
More about advance auto parts, carquest, Acquisition
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