The recent acquisitions of Midwest Auto Parts Distributors by O’Reilly Auto and Blacksmith Distributing by Keystone Automotive Operations, Inc. may be a sign of activity to come for family-owned companies and smaller distributors, suggests Dan Smith, president of Capstone Financial.
They are getting gobbled up by these larger players, he says. “Retailers and WDs are trying to enlarge their footprint to placate the manufacturers and give them broader distribution,” says Smith, who adds that there has been an increase of 31 percent this past year in transaction volume at the retail/wholesale level.
David Solomon, managing director of Goldsmith Agio Helms, an advisor to Midwest Auto, agrees that the aftermarket will continue to experience more consolidation but stresses that finding the right “fit” is essential for those looking to sell. Goldsmith Agio Helms’ VP Lyle Ayes tells us there were approximately six serious suitors interested in purchasing Midwest but that Bill Lahr, the late president and CEO, had modeled Midwest after O’Reilly, one reason “culturally, it was a very good fit.”
Midwest had achieved a 60/40 wholesale/retail mix, distinguishing itself as a successful dual-market player in its region, which included Minnesota, Montana, South Dakota, Wisconsin and Wyoming. And it’s no industry secret that O’Reilly has mastered the part retail, part wholesale business model, as they are, in fact, the only company to have a 50/50 mix of both.
“We wanted to find the right home for the company,” says Solomon, adding that if Lahr had to pick someone to own his company, he would’ve picked O’Reilly. “He respected their business model and wanted it to go to someone he trusted.”
Ted Wise, co-president and COO of O’Reilly and an Aftermarket Business editorial board member, adds that they’ve been in contact with Midwest for years as far as their industry relationship is concerned. Their management teams were well acquainted and they were both part of the same program group.
Midwest’s interim CEO Jim Bartholomew says this was an “absolutely positive move for Midwest,” adding that O’Reilly has substantial purchasing power and the funds to grow the company over the next several years. At the time of sale, Midwest had 71 corporate-owned stores, two large distribution centers, one smaller distribution center and about 700 employees. Bartholomew began his involvement with Midwest in 1999 on the board of directors and became interim CEO after Lahr passed away last fall.
The acquisition affords O’Reilly the opportunity to enter the markets Midwest existed in with a “good distribution center and a good core group of stores and operators,” says Wise. Greg Henslee, CEO and co-president of O’Reilly, adds that it was a “win/win to enter those markets with that type of footing.”
Solomon suggests that it would’ve taken O’Reilly anywhere from three to five years to build stores or acquire them one at a time in that region. “That was the beauty of this,” he says, “there was really no overlap.”
“From a northern expansion, it was a perfect fit for us,” comments Wise, adding that they will grow their company-owned store presence throughout those five states starting in Minnesota.
Henslee says that O’Reilly will also continue to service the independent jobber business that Midwest handled by running the Bumper to Bumper program. Both companies were members of the Alliance.
As far as inventory and distribution modifications, “there is very little change coming for the independent franchise owner other than line commonality.”
O’Reilly now has a footprint in 24 states as a result of this merger. Reports suggest that they plan to add another 160 stores before year’s end, though Wise tells us this acquisition was likely the largest we’ll see from them for the moment.
As for the purchase of Blacksmith Distributing, Keystone is continuing its aggressive growth strategy as they have tripled revenue over the past 10 years through a combination of acquisitions and organic growth, according to a company statement. Blacksmith president Lou Kovach says trends in the aftermarket with regard to new technology and increased parts variety were the reason they “felt it was a good time to team up with Keystone Automotive…”
These two announcements surely won’t be the only major acquisitions in aftermarket distribution this year. The retail aftermarket has seen a 41-percent consolidation among the top 20 players and the wholesale side has seen 10.6 percent consolidation among the top 20, according to Solomon. “What it means is that for the wholesale side it’s a wide open market,” Solomon projects. “All these guys are going to be jockeying for position.”
