Genuine Parts (GPC) is trading sharply higher this morning (+7%) after announcing it will acquire Alliance Automotive Group from private equity funds managed by Blackstone and AAG's co-founders. The acquisition is valued at a total purchase price of approximately US$2 billion, including the repayment of AAG's outstanding debt upon closing.
In terms of quick background, Genuine Parts is an Atlanta-based distributor of automotive replacement parts in the US, Canada, Mexico and Australasia. Its Automotive Parts Group includes NAPA automotive parts distribution centers and automotive parts stores. The company also distributes industrial replacement parts through its Motion Industries subsidiary. SP Richards, the Office Products Group, distributes business products in the US and Canada. The Electrical/Electronic Group, EIS, distributes electrical and electronic components throughout the US, Canada and Mexico.
Alliance Automotive Group is the second largest parts distribution platform in Europe, with a focus on light vehicle and commercial vehicle replacement parts. Headquartered in London, AAG has 7,500 employees and over 1,800 company-owned stores and affiliated outlets across France, the U.K. and Germany.
The deal has been approved by the Board of Directors of GPC and is expected to close in 4Q17. AAG is expected to generate gross annual billings of approximately $2.3 billion (US$) including supplier direct billings, or $1.7 billion of revenue on a US GAAP basis in 2017. Additionally, GPC expects the acquisition will be immediately accretive to earnings in the first year after closing. For 2018, incremental adjusted EPS is estimated at $0.65-0.70.
GPC says it's excited to combine with AAG and enter the European markets with critical scale and a leading market position in the automotive aftermarket. Lionel Assant, Head of European Private Equity at Blackstone, said, "Over the past three years, AAG has experienced tremendous growth and transformed into one of Europe's leading automotive parts distributors."
GPC intends to finance the transaction, including the pay-off of AAG's existing debt arrangements, with approximately $2 billion of debt financing. This will include the combination of new term loan agreements, new multi-currency debt and an upsized revolving credit facility.
In sum, based on the reaction in GPC's stock price, investors clearly happy with this news. The deal seems to make a lot of sense. GPC does not have a lot of exposure in Europe as it mostly operates in the Americas region. This instantly provides GPC was significant scale in Europe.