Advance Auto Parts acquires General Parts International for $2.04 billion

Advance Auto Parts, Inc., a leading provider of automotive aftermarket parts, accessories, batteries, and maintenance items, announced today that it has entered into a definitive agreement to acquire General Parts International, Inc. (GPII), a leading privately held distributor and supplier of original equipment and aftermarket replacement products for commercial markets operating under the Carquest and WORLDPAC brands.

The all-cash transaction with an enterprise value of $2.04 billion has created the largest North American retailer of auto aftermarket parts in North America, with annual sales of over $9.2 billion and more than 70,000 team members.

The transaction has been approved by the boards of directors of both companies.

General Parts International, headquartered in Raleigh, N.C., operates about 40 percent of Carquest’s 3,400 stores across North America. General Parts also owns Worldpac, which supplies replacement parts for imported car and truck brands.

Advance Auto CEO Darren Jackson said the addition of 1,418 Carquest locations would give the company scale across North America and the opportunity to position it as the leader in the commercial market.

The strong combined financial profile supports Advance’s commitment to maintain its investment grade rating. The acquisition of GPII will accelerate Advance’s growth strategy and enhance shareholder value through the following strategic benefits:

Creates Market Leader – (1) #1 automotive aftermarket parts provider in North America with a balanced platform for growth between do-it-yourself (DIY) and commercial, (2) #1 distributor of import automotive parts and (3) the largest automotive aftermarket business-to-business e-commerce platform in North America.

Delivers Scale – Provides Advance with complete coast-to-coast coverage across North America, creating a company with scale, reach and expanded growth opportunities benefiting shareholders, customers and team members. This presence in new markets allows Advance the ability to expand its geographic footprint in an efficient manner.

Accelerates Complementary Market Opportunities – Expands Advance’s product and category offerings in both core and new product lines (i.e. paint and heavy duty), creates new sales channel with independent customers and broadens ability to grow with attractive customer segments such as larger bay garages, import specialists, national accounts and fleet and government programs.

Strengthens Leading Brands and Capabilities – Enhances Advance’s ability to serve customers through the transfer of Carquest’s commercial capabilities and team member parts knowledge into Advance stores while expanding DIY into select company operated Carquest stores. The combination expands key capabilities in customer service through enhanced daily replenishment and customer loyalty programs to a larger truck fleet and a significantly expanded commercial sales team.

Darren Jackson, Chief Executive Officer of Advance Auto Parts states O. Temple Sloan, III president of General Parts International, Inc. will continue as president of GPII, and is expected to join the Advance Auto Parts board of directors. The combined company will be headquartered in Roanoke, Virginia and will continue to maintain a presence in Raleigh, N.C.

Jackson said, “This transformational transaction provides a compelling strategic opportunity for Advance to expand our geographic presence and commercial capabilities to better serve customers. The addition of 1,246 company operated stores and 1,418 independently owned Carquest locations provides us with an immediate platform and scale across North America, full market coverage and the opportunity to position ourselves as the market leader in the commercial business. We believe the combination of the two companies is a great fit and the synergy of GPII’s assets with our capabilities will allow us to capitalize on market opportunities that will create value for our shareholders and provide even better service to our customers. We welcome and look forward to working with the talented leaders and team members from GPII.”

Sloan added, “We are excited to bring together two highly complementary automotive aftermarket companies. The combination with Advance Auto Parts is the next logical step in our company’s evolution. Advance’s retail presence, strong capability infrastructure and acquisition integration experience combined with GPII’s leadership in the commercial, independent and import segments creates a powerful platform to drive profitable growth. With a more robust offering and a shared focus on best-in-class customer service, our combined business will continue to deliver value for customers and shareholders.”

Advance anticipates that the transaction will result in approximately $160 million of annual run-rate synergies to be fully realized within three years after closing. The transaction is also expected to generate considerable free cash flow and deliver significant estimated FY14 Cash EPS(1) accretion of more than 20% excluding one-time costs to achieve synergies and a percentage increase in the low teens including one-time costs to achieve synergies.

Advance Auto Parts intends to finance the acquisition through a combination of senior notes, bank debt and existing cash on hand. Following the transaction, Advance expects to continue to have a solid balance sheet supported by the strong cash flow of the combined business. In connection with the transaction, Advance has received a financing commitment from JPMorgan Chase Bank, N.A. with the senior notes offering and bank debt syndication expected to occur prior to closing.

Mike Norona, CFO of Advance Auto Parts said, “This strategic transaction presents an exciting opportunity for value creation and Advance is dedicated to delivering on the compelling financial potential this combination creates while remaining committed to maintaining our investment grade credit rating.”

The transaction is subject to regulatory approvals and customary closing conditions and is expected to close by late 2013 or early 2014. Advance Auto will have to pay a termination fee of $185 million, under certain circumstances, if the deal falls through.