BUSINESS DESCRIPTION

The Parts Alliance is a UK buying group for aftermarket car parts distributors. It currently consists of thirteen parts distributors and a central organisation which acts as a “virtual head office” supplying the distributors with a full suite of central services such as national sales and marketing, IT, procurement, product and category management and central warehousing. To date, we have acquired six members of the Parts Alliance (CES, Allparts, SC Motor Factors, GMF, BMF and CPA), the central buying group and its IT development arm (the Parts Alliance and DDS), and 15 branches from the Unipart estate. In 2015, we announced the acquisition of GSF, and in 2016 we added SAS Autoparts and Waterloo Ltd.

Our intention is to build a strong national player which we believe will be attractive to a range of potential trade and financial buyers.

WHY DID WE INVEST?

The £5.2 billion UK car parts market is amongst the most fragmented in Europe, with c. 1,400 participants, and is characterised by greater levels of owner-management. We believe several market, regulatory and commercial catalysts will encourage consolidation of this sector in both the UK and Europe, which will offer a number of interesting investment opportunities and exit options. So far, we have invested c. £70 million of client capital with all of the previous owners reinvesting between 10% and 20% of their proceeds; as a result, we take some comfort that the founder/key man risk in these transactions has been mitigated and that they have confidence in the commercial logic behind our investment thesis.

HOW DO WE INTEND TO CREATE VALUE?

We intend to create value in the investment in three ways: improving gross margin with better procurement, category management and more effective pricing; building EBITDA margin by improving productivity, performance management and customer segmentation; and removing duplication in the back office.

WHAT HAS BEEN ACHIEVED?

The business has been scaled through M&A and the management team has been focused on sustainable growth from the core estate, as well as improving the online offering by utilising DDS (the IT development arm of the Parts Alliance).

Management’s key focus remains: improving gross margin; implementing EBITDA margin improvement opportunities; and harmonising the management information systems.

HOW IS IT PERFORMING?

The Parts Alliance has seen a continuation of its positive trading performance over the last couple of years driven by scale benefits. Management is forecasting this trend to continue in the financial year ending 30 April 2017.

An improvement in trading over 2016 has led to an uplift of £2 million in the Company’s valuation of its stake in the Parts Alliance.

HOW WILL WE CRYSTALLISE VALUE?

We believe the national footprint created by the roll-up of the Parts Alliance will potentially appeal to US and European trade parties. Moreover, the fragmented nature of the market and the roll-out model inherent in a branch-based business model should additionally appeal to financial sponsors and trade buyers alike. This is evidenced by recent M&A activity in the sector.

Sector Location Date of Investment Residual cost £’000 Unrealised Value £’000
Services UK August 2012 10,495 14,600