Advance Auto Parts Inc (AAP.N) will buy 1,418 outlets of the Carquest chain to boost its auto repair operations to complement its car parts business, sending its shares up as much as 20 percent to a record high.
Advance Auto, which sells products such as batteries, air fresheners and engine parts, said it would buy General Parts International Inc for just over $2 billion, creating the largest North American retailer of auto parts.
General Parts is the biggest operator of the Carquest chain, which runs auto repair shops and car parts stores. General Parts also owns Worldpac, the No.1 supplier of replacement parts for imported car and truck brands.
Carquest and Worldpac - two of the largest automotive retail parts suppliers in North America - had sales of $2.9 billion in the last 12 months.
"We view Advance Auto's decision as a smart strategic acquisition that vaults the company into a much stronger position in the faster growing and more attractive do-it-for-me segment and gives them a crown jewel in Worldpac," Credit Suisse analyst Simeon Gutman said in a client note.
Advance Auto said the General Parts purchase will hugely increase its customer reach from coast-to-coast in North America, where parts sales have slipped as more Americans buy new cars.
The company has been trying to improve its footprint in the commercial repair industry. It bought the second-largest operator of Carquest stores, BWP Distributors Inc, in December.
Commercial repair accounts for about 85 percent of Carquest's sales.
Advance Auto Chief Executive Darren Jackson said commercial sales would jump to 55 percent of total revenue from 35 percent after the General Parts deal.
"We continue to expect (that) industry sales to commercial customers will outpace do-it-yourself (DIY) long term as cars get more complicated, baby boomers age, and younger demographics are less involved with DIY repairs," Stifel Nicolaus analyst David Schick said.
The combination of Advance Auto Parts and General Parts would create a company with $9.2 billion in annual sales, just above those of the current biggest player, AutoZone Inc (AZO.N). AutoZone reported adjusted sales of about $9 billion for the year ended August 31.
Advance Auto said it expects to save about $160 million annually within three years of the deal closing, scheduled for late 2013 or early 2014.
The company will finance the transaction with cash and debt. It said it has received financing commitment from JPMorgan Chase Bank NA.
Advance Auto will have to pay a termination fee of $185 million, under certain circumstances, if the deal falls through.
Blackstone Advisory Partners LP and JP Morgan Securities LLC served as financial advisers to Advance Auto. Kirkland & Ellis LLP was the legal adviser.
Wells Fargo Securities LLC and Orr Group LLC were financial advisers to General Parts and its legal advisers were Manning Fulton & Skinner PA and Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan LLP.
Advance Auto also said on Wednesday that sales for the quarter ended September 30 rose 4.3 percent due to its purchase of BWP Distributors. Sales at stores open for at least a year fell 2 percent.
Shares of Advance Auto were up 16 percent at $95.63 at midday on the New York Stock Exchange. Shares of AutoZone and O'Reilly Automotive Inc (ORLY.O) also rose 1 percent.
(Additional reporting by Sakthi Prasad and Neha Dimri in Bangalore; Editing by Supriya Kurane, Sriraj Kalluvila and Maju Samuel)