Washington, D.C. — An aging car parc, ever-increasing miles-travelled and greater vehicle complexity will continue to drive robust demand across the automotive aftermarket through 2024, according to the recently-released Capstone Partners Automotive Aftermarket M&A Coverage Report October 2023.
Capstone’s report states that an “aging [U.S.] car parc, growing miles travelled and increased vehicle complexity have underpinned robust demand” across much of the aftermarket and its subsectors.
One of the report’s key takeaways suggests that the aging car parc—the average vehicle age is predicted to reach 12.3 years in the U.S. in 2023—continues to drive elevated demand for aftermarket services.
The report also notes that, as vehicle complexity continues to rise, the “do-it-for-me” trend has continued to accelerate, driving additional tailwinds for many aftermarket subsectors.
Considering the conditions, private equity firms have deployed capital to either add to existing business or establish new platforms in select markets, reads the report.
“Strategic buyers have continued to pursue target companies that offer operational synergies, complementary product or service offerings or geographic expansion,” states Capstone.
Gaining economies of scale, growing market share, enhancing capabilities, and diversifying existing offerings have served as key motivations for consolidation activity, notes Capstone. Further, buyers have also demonstrated a willingness to pay premium multiples for targets
that offer significant potential synergies, entry into new markets, or provide a strategic fit within the buyer’s current suite of services or products.
“Notably, LKQ acquired Uni-Select for an enterprise value of $2.1 billion, equivalent to 1.2x EV/Revenue and 13.6x EV/EBITDA (February). UniSelect is a leading distributor of automotive replacement parts, accessories, tools and equipment, paint, and collision repair products,” reads the report.
Capstone also says that, while private equity buyer activity remains robust, sponsors have increasingly focused on performing diligence on revenue and demand drivers of potential targets.
“Effectively passing on costs to consumers has been a staple of the inflationary environment, but as pricing pressure mitigates, acquirers have preferred to see healthy unit growth significantly contributing to sales—demonstrating strong demand.”
