Private Equity Automotive Aftermarket

Understanding Private Equity Automotive Aftermarket

Private equity plays a large role in founder liquidity events, but it can also serve as an avenue for majority and minority investment. Private equity automotive aftermarket tends to offer competitive valuations, particularly if there are potential synergies to be had within the portfolio. It’s common knowledge that many automotive aftermarket companies have been acquired by private equity in an attempt to grow and achieve strong margins quickly. For companies getting acquired, you can expect the PE firm to be an operator. For companies receiving investment, the PE firm will generally take a board seat and provide guidance to management.

Private equity firms are demanding, regardless of whether they raise their own funds and have to generate returns for their limited partners (LPs) or if they are a sponsor and receive capital from outside capital providers, which they have to repay, instead of LPs. Private equity for the automotive aftermarket is less interested in investing “for their grandchildren,” as compared to alternative investors like family offices or pension funds. Therefore it’s important to consider timelines and your personal goals. Capstone has done many deals with PE on behalf of our clients, but this is not always the best strategy.


Opportunities for Private Equity Investment in the Automotive Aftermarket

There is plenty of opportunity for private equity in the automotive aftermarket. We survey all types of financial investors annually, including PE, to ask them what sub-industries within mobility they are interested in. While every PE firm interested in the space has different interests, financial and operational mandates, as well as fit criteria, our goal is make sure we target the right firms that offer you the best outcomes. Some firms target suppliers, some multifarious distribution, and some target the jobbers and installers. With that said, some firms are agnostic as to what part of the value chain they seek.


Types of Private Equity Deals in the Automotive Aftermarket

There are many types of deal structures within PE. At a high level there are either asset or stock deals, or a combination thereof. Capstone has experience across the following transaction or deal types that are common to private equity for the automotive aftermarket:

Leverage buyouts (LBO) – targeted acquired via debt with assets used as collateral.
Growth capital – investment aims to provide capital for expansion, product development, market entry, or other high growth initiatives.
Mezzanine financing – combines debt and equity to fund the purchase.
Management buyouts (MBO) – the existing management team along with PE buys out the current owners.
Recapitalization – adjust the capital structure.
Distressed investments – acquire financially troubled companies
Secondary market – buy or sell existing positions in companies to other investors or PE firms.

Liquidity events for founders are often in the form of cash and earnout, and it’s important to have the proper guidance to determine the optimal structure/agreement between buyer and seller to properly manage risk and reward. We are happy to provide pro bono advice on the subject matter.


Are there typical players in the space that would be interested in my company?

The answer depends on a lot of factors; the primary one is usually valuation. However, top-line revenue, margins, operational territory and investment type (minority, majority, or 100% sale), bandwidth of the PE firm to take on a new deal and/or opportunity cost of not focusing on another deal, and access to capital, among other factors, play very large roles in whether or a not a typical PE player will be interested in your company. Private equity in the automotive aftermarket is dynamic. Players come and go, and some make investments with great outcomes while others have learned costly lessons.

In any case, it’s CRITICAL to consider the entire universe of buyers. Sometimes this is 20 PE firms, but generally it’s more than 50 with a very targeted approach. Regardless of whether or not your company is big enough to be a private equity automotive aftermarket platform investment or a bolt-on acquisition to a platform due to size, Capstone works with you to target the right firms. We do not cast wide nets for the automotive aftermarket, but our relationships and understanding of the industry have proven to generate positive outcomes for our clients. Let’s discuss what the universe looks like.


Which PE firm have you done the most deals with for the automotive aftermarket?

Probably Kinderhook Industries. However, there’s a lot of deals we haven’t done with Kinderhook, including deals outside of PE.

Why do private equity firms invest in the automotive aftermarket?
Private equity in automotive aftermarket is popular due to its potential for steady revenue streams, market growth, consolidation opportunities, and the ability to add value through operational improvements and strategic initiatives.
What types of companies in the automotive aftermarket are targeted by private equity?

Private equity firms target various companies in the automotive aftermarket, including parts manufacturers, distributors, retailers, repair service providers, e-commerce platforms, and technology-driven aftermarket solutions.

How do private equity investments impact the automotive aftermarket?

Private equity investments can drive consolidation, facilitate industry growth, bring operational efficiencies, support technological advancements, and provide capital for expansion and innovation in the automotive aftermarket.

What role do private equity firms play in the growth and development of automotive aftermarket companies?

Private equity firms provide capital, strategic guidance, operational expertise, and industry connections to help automotive aftermarket companies accelerate growth, enhance profitability, and navigate market challenges.

How do private equity firms add value to automotive aftermarket companies?

Private equity firms add value by implementing operational improvements, optimizing supply chain management, facilitating acquisitions and partnerships, enhancing marketing and branding strategies, and driving financial performance.

What factors do private equity firms consider when evaluating investments in the automotive aftermarket?

Private equity firms consider factors such as market potential, competitive landscape, company growth prospects, financial performance, management team capabilities, and alignment with their investment strategies.

Do private equity firms only focus on mature companies in the automotive aftermarket?

Private equity firms may target both mature companies with established market positions and growth-oriented companies with innovative business models or technologies in the automotive aftermarket.

How long do private equity firms typically hold their investments in the automotive aftermarket?

The holding period for private equity investments in the automotive aftermarket varies, but it typically ranges from three to seven years, during which the firm aims to enhance the company’s value before exiting the investment.

What are some notable examples of private equity investments in the automotive aftermarket?

Notable examples include private equity firms investing in aftermarket parts manufacturers, e-commerce platforms for automotive products, specialty service providers, and companies offering technology solutions for the aftermarket industry.