Genuine Parts Co. (NYSE: GPC) shares made a solid gain to kick off the week, pushing back to even on the year. What spurred this turnaround? Genuine Parts is buying Alliance Automotive Group (AAG) in a $2 billion deal including debt. With this acquisition, Genuine Parts will break into the European auto parts market.
It seems that Europe might be the only way for this company to turn itself around as auto parts retailers in the United States have been absolutely destroyed in 2017. O’Reilly Automotive Inc. (NASDAQ: ORLY), AutoZone Inc. (NYSE: AZO) and Advance Auto Parts Inc. (NYSE: AAP) are all down at least 20% year to date, and industry headwinds don’t seem to be getting any better.
The deal has been approved by Genuine Parts board of directors and is set to close in the fourth quarter of this year.
AAG is expected to generate gross annual billings of roughly $2.3 billion, including supplier direct billings, or $1.7 billion of revenue on a U.S. GAAP basis in 2017.
Genuine Parts expects the acquisition to be immediately accretive to earnings in the first year after closing. For 2018, incremental diluted earnings per share is estimated at $0.45 to $0.50 and adjusted earnings per share is estimated at $0.65 to $0.70, which excludes the amortization of acquisition-related intangibles. Thomson Reuters has consensus estimates of $5.13 per share in earnings and revenue of $16.47 billion for the 2018 full year.
The combined company will be looking to compete with the likes of LKQ, which is the largest auto parts distributor by gross billings in Europe. The European light vehicle aftermarket is estimated to be valued at $80.8 billion.
Paul Donahue, president and CEO of Genuine Parts, commented:
We are excited to combine with AAG and enter the European markets with critical scale and a leading market position in the automotive aftermarket. AAG is poised to contribute significant sales growth and earnings accretion to Genuine Parts Company and also serves to enhance the GPC platform for long-term, sustainable expansion across the global automotive parts industry. AAG has a strong management team and a deep bench of talent, and our similar cultures and histories make this acquisition an excellent strategic fit. We are confident this business investment will create significant value for our shareholders, and we welcome the AAG team to the Genuine Parts family. We look forward to their future contributions to our ongoing success.
Shares of Genuine Parts were last seen up about 6.6% at $93.79, with a consensus analyst price target of $84.75 and a 52-week range of $79.86 to $101.01.