Uni-Select Inc. announced that it has entered into agreements with a fund managed by Hg Pooled Management Limited and other minority shareholders through which its wholly owned U.K. subsidiary will acquire 100% of the shares of PA Topco Limited doing business as The Parts Alliance, the second largest independent distributor of automotive aftermarket parts in the U.K.
The transaction value is approximately £205.0 million on a cash-free and debt-free basis, subject to working capital and other customary adjustments. The transaction is fully funded with debt.
“We are excited to establish a third growth pillar in the large U.K. parts aftermarket that is expected to be immediately accretive in a market with great upside potential from future consolidation opportunities. Parts Alliance is a great organization, with a market leadership position and national scale, a proven growth platform and an experienced management team that has demonstrated its ability to drive profitable growth both organically and through acquisitions,” said Henry Buckley, President and CEO of Uni-Select. “Our two companies are a perfect fit in terms of business profile, customer focus, entrepreneurial culture and commitment to people development.”
Headquartered in Solihull, England, Parts Alliance has grown rapidly in recent years to become the second largest player in the U.K. automotive aftermarket parts market with an approximate 7% share. It services over 23,000 customer accounts through 161 corporate stores and 38 affiliated locations in its network providing 85% national coverage, and employs more than 2,900 team members. The Parts Alliance is a founding member of NEXUS Automotive International SA.
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On an unaudited basis, for the fiscal year ended April 30, 2017, Parts Alliance recorded £264.9 million in sales and £17.8 million in operating earnings before interest, taxes, depreciation and amortization and non-recurring costs (adjusted EBITDA(1)). Including the most recent acquisition completed to date, Parts Alliance’s run rate adjusted EBITDA(1) is estimated at £21.0 million, on an estimated £280.0 million in sales. Uni-Select estimates a purchase price multiple of 9.7X based on run rate adjusted EBITDA(1).
Transaction overview
The transaction provides Uni-Select with an attractive point of entry into a new geographic market currently in consolidation with high growth and accretion potential and a third growth pillar to complement its segments, Canadian Automotive Group and FinishMaster US. Continued growth, driven mostly by growing and ageing U.K. car park is expected.
“We have full confidence that by partnering with Uni-Select, our capability to grow our operations further has significantly increased, all to the benefit of our customers, team members, associates and suppliers,” stated Peter Sephton, President and CEO of Parts Alliance.
Upon closing of the transaction, Sephton will join Uni-Select’s executive team while continuing his leadership role in the U.K. as President and CEO of the European business segment.
The U.K. automotive aftermarket parts market, estimated at £4.1 billion, is the fourth largest in Europe and one of the most fragmented. Market growth is expected in the coming years, driven mainly by the aging of the car population and mandatory government regulations that require a thorough vehicle inspection for all cars reaching three years of age.
Transaction financing
To finance the transaction, Uni-Select has secured a US$625 million fully underwritten commitment from National Bank of Canada, as co-lead arranger and sole bookrunner, and Royal Bank of Canada, as co-lead arranger, comprised of a new US$100.0 million term facility and an operating facility up to US$525.0 million, from which facilities an amount will be available and used to finance the transaction.
(1) Non-IFRS (non-UK GAAP) measures. Refer to the “Non-IFRS (non-UK GAAP) measures” section and the attached appendix for further details.
Assuming the transaction would have closed on June 1, 2017, an amount of approximately US$168.0 million of the new credit facilities would have remained undrawn at closing of the transaction and would have remained available for general corporate purposes and other growth opportunities. Strong operating cash flow should allow for rapid deleveraging.
“The combination of Parts Alliance with our North American operations will underpin growth in key target markets and maintain our solid financial position,” said Eric Bussières, Chief Financial Officer of Uni-Select.
Transaction approvals
Closing is expected to occur in the third quarter of 2017. The terms of the Transaction have been approved by the Board of Directors of Uni-Select and Parts Alliance shareholders and remain subject to customary regulatory approval.
Financial and legal advisors
National Bank of Canada and Royal Bank of Canada underwrote the financing, Freshfields Bruckhaus Deringer LLP is serving as U.K. legal advisor and McCarthy Tétrault LLP is serving as Canadian legal advisor for Uni-Select. Jefferies LLC acted as the M&A financial advisor.
Hg Capital was advised by Baird and legal advice was provided by White & Case LLP.
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