Carlyle Group to acquire Worldpac unit for $1.5bn

November 2024 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

November 2024 Issue

Private equity giant Carlyle Group has announced it is to acquire Advance Auto Parts Inc.’s Worldpac unit for $1.5bn. The deal is the firm’s first major industrial investment in more than two years.

The transaction, which is expected to close before the end of the year, is part of Advance Auto Part’s latest attempt to streamline its operations. Shane O’Kelly, Advance’s president and chief executive, said on a post-earnings call that the macro environment was challenging, and retailers were lowering expectations, but noted that the company was starting from a "lower baseline relative to the industry”.

“We are pleased to announce the sale of the Worldpac business,” said Mr O’Kelly. “The sale enables our team to sharpen their focus on decisive actions to turn around the Advance blended box business. Proceeds from the transaction will provide greater financial flexibility as we continue our strategic and operational review to improve the productivity of the company’s remaining assets and better position the company for future growth and value creation. On behalf of everyone at Advance, I would like to thank the more than 5000 Worldpac team members for their dedication over the last 10 years.”

“What we like about Worldpac is it’s just the professional market, the repair shops, and the trend longer term is for that market to grow and the economic resiliency makes it an attractive part of the industry,” said Wes Bieligk, a partner in the Global Industrials investing team at Carlyle. “This is bread and butter what we’re looking to do for Carlyle from an industrial perspective. A really nice business that’s buried within a corporate parent that we’re looking to unleash and support going forward.”

Carlyle’s investment in Worldpac builds on the firm’s extensive carve-out experience in the industrials sector, having invested around $13bn in industrial carve outs over the past two decades, including in companies such as Axalta, Nouryon, Atotech, Signode and Allison Transmission. Advance acquired Worldpac in 2014 when it bought General Parts International.

Advance, a leading automotive aftermarket parts provider in North America that serves professional installers and do-it-yourself customers, has been under considerable pressure from shareholder activists to divest the Worldpac unit to improve compensation to better compete with AutoZone Inc. and O’Reilly Automotive Inc. Worldpac, a wholesale distributor of original equipment replacement parts, generated about $2.1bn in revenue for the 12 months ended 30 June.

At the end of the second quarter of 2024, the Worldpac business generated about $2.1bn in revenue and about $100m in earnings before interest, taxes, depreciation and amortisation (EBITDA). And Advance Auto Parts expects net proceeds of approximately $1.2bn after taxes and transaction fees.

As of 13 July 2024, Advance operated 4776 stores and 321 Worldpac branches primarily within the US, with additional locations in Canada, Puerto Rico and the US Virgin Islands. The company also served 1138 independently owned Carquest branded stores across these locations in addition to Mexico and various Caribbean islands.

In August, Advance Auto also cut its annual sales and profit forecasts after bumpy demand for auto parts and expects headwinds related to maintenance deferrals and lower discretionary spending. Advance now expects its net sales in 2024 to be between $11.15bn and $11.25bn, down from its prior expectations of $11.3bn and $11.4bn.

The company expects annual profit per share to be between $2 and $2.50, compared with the prior forecast of $3.75 and $4.25.

Richard Summerfield