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12/13/2013

LKQ In Deal To Buy Keystone Automotive Operations For $450 Million

Source: The GreenSheet

LKQ Corp. has signed a definitive agreement to acquire Keystone Automotive Operations for $450 million. The transaction is expected to be completed in the first quarter of 2014, and is subject to customary closing conditions and regulatory approvals.

Keystone has 25 locations, five distribution centers and 20 non-inventory stocking cross-docks in the United States and Canada. They serve more than 20,000 specialty retailers and equipment installers throughout North America, offering more than 300,000 SKUs from 800-plus suppliers. Keystone markets products to a number of segments: truck and off-road; speed and performance; recreational vehicle; towing; wheels, tires and performance handling; and miscellaneous accessories.

LKQ is the largest U.S. provider of alternative collision replacement parts. It’s also a provider of recycled engines and transmissions, as well as remanufactured engines. The company also has operations in the United Kingdom, Canada, Mexico, Taiwan, the Netherlands, Belgium, France, Guatemala and Costa Rica.

Its European operations include Euro Car Parts (ECP), a hard parts distributor based in the United Kingdom; and Sator Beheer, a distributor of automotive aftermarket parts in the Netherlands, Belgium, Luxembourg and northern France

The addition of Keystone means — as BB&T Capital Markets accurately points out — that LKQ has completed its parts portfolio, giving it the ability to supply collision, performance/specialty and traditional hard parts … albeit in disparate geographies. Analysts from BB&T point out in a Dec. 6 report that LKQ now has the potential to leverage the lines across various regions for future growth (collision into Europe and potentially hard parts into North America).

BB&T views the acquisition favorably as Keystone provides LKQ with access to the highly-fragmented specialty equipment market. “As Keystone’s product categories represent roughly $5 billion of a $31-billion market segment, we believe the acquisition will provide a significant growth runway opportunity in North America, given LKQ’s solid DC and fleet footprint and Keystone’s access to roughly 800 specialty aftermarket suppliers,” analysts Bret Jordan and David Kelley wrote in a Dec. 6 report.

“While Keystone operates five distribution centers, a fleet of 350 trucks and employs roughly 1,500 employees, we anticipate LKQ will be able to leverage an existing North American facility base (more than 320 facilities) to expand Keystone’s current distribution network and product offering (Keystone has access to over 1.2 million SKUs from their current supplier base),” Jordan and Kelley wrote. “We believe LKQ has the opportunity to become a leader in the roughly $30-billion specialty aftermarket equipment market.”

Additionally, as the Keystone catalog and supplier base appears to offer potential cross-sales into western Europe’s specialty performance market (through ECP and Sator Beheer’s distribution network), “we believe potential synergies could drive longer-term sales growth to management’s current full year 2014 Keystone revenue forecast of $700 million,” the analysts said.

As for LKQ, here’s what it’s saying: “LKQ will become a leading player in the specialty aftermarket equipment and accessories business with this acquisition,” explained Robert Wagman, president and CEO. “In addition, our addressable market opportunity in North America will be significantly expanded. The entire specialty aftermarket equipment and accessories industry is a highly fragmented $31-billion market, and Keystone’s current product categories represent about $5 billion of the industry.”

LKQ expects the transaction to be accretive to its earnings in 2014. Keystone’s revenue for 2014 is expected to be approximately $700 million, with an EBITDA margin of roughly 10 percent. These projected results exclude restructuring and acquisition-related expenses.

The company intends to finance the acquisition with borrowings on its revolving credit facility and asset securitization program. As of Sept. 30, LKQ had approximately $1.20 billion available from these sources.

 

 




 

 

 

 

 

 

 

 

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