Founded in 1972, Parts Authority is one of the country's largest aftermarket distributors of replacement automotive and truck parts. Harris Williams recently advised Parts Authority, a business of the Jordan Company, on its sale of a majority interest to Kohlberg & Company, LLC. Here, we discuss what makes the automotive aftermarket sector appealing for buyers, the factors differentiating Parts Authority from other companies, and our advice for buyers active in the sector.
Why is this an appealing space?
Jones: The automotive aftermarket is a very large and resilient sector with a number of attractive subsectors, including aftermarket parts distribution, where Parts Authority sits. It's a sector with a needs-based demand profile: Automotive repairs are spending decisions that people have to make in order to keep their cars operating. Together with a non-discretionary demand profile, there are numerous industry tailwinds that support continued growth, from increasing vehicles in operation to car age, miles driven, and the complexity of modern vehicles.
In addition, most of the automotive aftermarket is very fragmented, creating plenty of opportunities to generate value through consolidation and professionalization.
What made this an especially attractive company?
Conner: Parts Authority has a very broad catalog of over three million parts. It's known for its product breadth and depth, and for its parts availability. It's a warehouse-based business, with locations very close to concentrations of customers. It has the tracking technology to find and retrieve the needed parts and a local delivery capability that gets orders to customers very quickly—often within the hour. For installers with cars on lifts waiting for parts, Parts Authority's parts availability and speed of delivery are critical.
Baltimore: The company also has warehouses in the right locations stocked with a huge catalog of parts, and the technology backbone to manage, track, and distribute the inventory. Parts Authority has developed a sophisticated IT infrastructure that differentiates how the company manages its inventory, engages with customers, enables e-commerce, and integrates acquisitions.
Morris: Parts Authority also has a depth of industry knowledge that sets the company apart. The counter personnel have decades of experience to help customers determine the parts they need to solve their problem. They have a consultative approach that is valuable and attractive to installers—while speed of delivery is crucial, it only matters if the correct part is delivered.
Parts Authority is also multi-channel: It serves fleets, professional installers, the retail channel, and the do-it-yourself community. Its strength in e-commerce has served it well throughout COVID-19. The sale of parts online really took off with people being at home and taking on projects they may have otherwise outsourced.
Jones: I would add that Parts Authority has grown both organically and through acquisitions. The company has acquired over a dozen companies in the past several years as part of its expansion strategy. As it acquires new companies, it installs better technology and market insights around managing inventory and purchasing. It right-sizes inventory according to the demand profile of the local market and leverages its relationships with large national purchasing groups. Plus, the brand reputation it has built with installers creates instantaneous demand as it moves into a market.
What should other prospective buyers know about this subsector?
Conner: In the aftermarket parts subsector in particular, product availability, speed of delivery, and value-added problem solving are important differentiators. Also, the ability to acquire smaller players and bring scale, infrastructure, and brand reputation to them to enhance and grow their market presence has been important for Parts Authority and is a characteristic to look for in other leading players.
Jones: Parts Authority is representative of the massive opportunity that exists in the broader automotive aftermarket. The needs-based demand profile creates a hotbed of attractive individual companies across a variety of very attractive subsectors. There are many great opportunities in the space for investors to discover.