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The acquisition of General Parts International provides Advance "coast-to-coast coverage."
STEPHANIE KLEIN-DAVIS | The Roanoke Times
George Sherman, president of Advance Auto Parts, discusses Wednesday the company’s acquisition of General Parts International.
Thursday, October 17, 2013
On Wednesday, Advance Auto Parts executives described the company's acquisition of a competitor as a monumental and historic transaction and predicted the deal will be nothing but good news for the Roanoke region.
The Roanoke-based Fortune 500 retailer of automotive aftermarket parts disclosed that it is acquiring General Parts International, a privately held company headquartered in Raleigh, N.C., in an all-cash transaction of more than $2 billion.
Advance said the acquisition creates the largest automotive aftermarket parts provider by sales volume in North America, with combined sales of more than $9.2 billion and about 72,000 employees. About 54,000 of those employees are with Advance, with about 1,600 in the Roanoke region, the company said.
Advance said the deal fits the public company's strategy to be more of a player in selling parts to commercial customers such as repair shops, and dramatically expands its geographic footprint to offer "coast-to-coast coverage across North America."
Advance President George Sherman said Wednesday that competitor AutoZone, which has been at the head of the pack among auto parts retailers, will be a close second in sales volume. For its fiscal year ended Aug. 31, AutoZone reported sales were $9.1 billion. In February, Advance reported sales for fiscal 2012 of about $6.2 billion.
Sherman said the acquisition of GPI should be positive for Roanoke, where he said the combined companies will be headquartered.
The company reported that GPI will "continue to maintain a presence in Raleigh." Sherman acknowledged that there could be job losses in Raleigh as the consolidation of the companies reveals duplication in tasks.
Asked whether employment in the Roanoke headquarters might increase, Sherman replied, "Time will tell."
Roanoke philanthropist Nick Taubman, a longtime leader of Advance Auto, said he believed the acquisition, based on the facts he knew Wednesday, would be "greatly beneficial" for the company and the region. His father, Arthur Taubman, founded Advance in Roanoke in 1932.
"He would have felt great," Taubman said. "I don't think he would have ever thought the company would have 72,000 employees."
Advance described GPI as "a leading privately-held distributor and supplier of original equipment and aftermarket replacement products for commercial markets operating under the Carquest and Worldpac brands."
Advance executives have talked for some time about expanding the company's presence in commercial markets, where suppliers sell parts to repair shops and other commercial customers. The company's traditional focus on do-it-yourself customers has been affected by an industry decline in DIY sales linked, in part, to the increasing complexity of modern vehicles.
"We see commercial as an important part of our growth strategy," Sherman said. "We were primarily a do-it-yourself business in the early years."
He said Advance remains committed to its DIY business, which he said has been an important part of the company's heritage.
Advance's sales mix has recently been about 40 percent commercial and 60 percent DIY, according to company spokeswoman Shelly Whitaker. Advance said Wednesday that the acquisition of GPI will shift the mix to about 55 percent commercial and about 45 percent DIY.
GPI has been a distributor and retailer of parts for automobiles, trucks, off-road equipment, buses, agricultural equipment and more.
Advance said it intends to finance the acquisition through a combination of bank debt, senior notes and cash on hand.
Bret Jordan, an analyst for BB&T Capital Markets in Boston, follows the automotive aftermarket parts industry. He said Advance could face some challenges integrating three company cultures, noting that Carquest and Worldpac have essentially operated separately.
"There are certainly a lot of moving parts," Jordan said.
He said Worldpac is a well-respected company but said Carquest "might be a bit of a fixer-upper for Advance," noting that Carquest "was being shopped" during much of 2012.
But he said that if Advance smoothly integrates the three companies and achieves the positive results that the combination could yield, Advance could become a formidable business for other companies to compete against.
As of Oct. 5, Advance said it operated 4,018 stores in 39 states, Puerto Rico and the Virgin Islands. It said Carquest has 1,246 company-operated stores, 1,418 independently owned locations and 38 distribution centers. Worldpac, an importer and distributor of auto parts, has four main distribution centers and 102 facilities across the U.S. and Canada.
Sherman said the distribution centers also could serve Advance stores and said company officials will consider how to efficiently operate those centers.
AutoZone, headquartered in Memphis, Tenn., reported in September that as of Aug. 31 it had a total store count of 5,201.
Sherman said the Worldpac brand will continue. He said Advance will determine whether to consolidate individual Carquest and Advance stores. Advance will continue to be the flagship brand, he said.
Advance said boards of directors for both companies have approved the deal, which it suggested will accelerate the company's growth strategy "and enhance shareholder value."
The transaction is subject to regulatory approval, Sherman said, and is expected to close late this year or in early 2014.
In November, reports by several national financial news outlets suggested Advance might be up for sale. At the time, Whitaker said Advance would not comment on rumors and speculation. On Wednesday, Sherman repeated that message when asked about those reports.
Advance also released preliminary numbers Wednesday for its fiscal third quarter ending Oct. 31, reporting that sales for the quarter increased about 4.3 percent to $1.52 billion when compared to the same period last year. The company attributed the increase to the earlier acquisition of BWP Distributors and the addition of new stores.
Advance trades on the New York Stock Exchange as AAP. The company's share price, which closed Tuesday at $82.50, jumped about 20 percent soon after news broke of the acquisition of GPI. During the day, the stock price reached a 52-week high at $99.30 and closed at $96.16, for a one-day gain of nearly 17 percent.
Staff writer Jeff Sturgeon contributed to this report.
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