LKQ increases presence in Eastern Europe through purchase of Rhiag-Inter Auto Parts
LKQ’s purchase of Rhiag-Inter Auto Parts Italia, amounting to an enterprise value of $1.14 billion, will expand the Chicago-based firm’s sales reach into Italy, the Czech Republic, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Slovakia, Poland and Spain.
“This acquisition gives us access to the rapidly growing Eastern European market, and of course Italy, where Rhiag’s base business is well positioned for continued growth beyond their current 15 percent market share,” according to Robert L. Wagman, LKQ’s CEO and president.
Noting in a conference call with stock analysts that “our European strategy continues to evolve,” he says the deal will allow “more runway to grow this fragmented market” and further solidify LKQ’s “market-leading position across all of Europe.”
With more than 100,000 automotive professionals as customers, Rhiag has 247 distribution centers and 10 warehouses; 5,700-plus wholesalers are served.
Europe presents a “definite positive trend” as the car parc’s average age is 8.7-years-old, “so we do expect that to be a nice tailwind for our European car parts business. As old cars get older, sort of what they’re seeing here in United States, you’ll see more need for those mechanical parts,” Wagman says.
The increasing complexity and sophistication of today’s passenger car and commercial vehicle components is another factor cited in LKQ’s forecast of operational achievements going forward, along with Rhiag’s existing strong management team and an attractive distribution system.
The purchase, completed March 18, “expands our addressable market with the addition of 10 new countries to our European footprint,” says Wagman.
“Rhiag has a strong market position in Italy and the Czech Republic and experienced management teams in their respective markets,” he says. “Clearly this acquisition will accelerate our strategy of creating a Pan-European aftermarket mechanical parts distribution business in this highly fragmented €188-billion ($208.8 billion) wholesale DIFM market.”
“I believe that, combined with LKQ, Rhiag Group will be in an even stronger position to deliver its superior service level to customers across Europe,” says Luca Zacchetti, Rhiag’s CEO.
LKQ board member Sukhpal Singh Ahluwalia – who is also the chairman of Euro Car Parts, the U.K.’s largest distributor with 200-plus outlets – reports, “I have long admired Rhiag’s impressive track record of growth and strong distribution network. We have numerous common suppliers, and I have worked closely with many of them for more than 30 years. I am confident that together with Rhiag we will make our supplier relationships even stronger. LKQ and Rhiag share a commitment to serve our customers and a desire to expand into new markets.”
“Rhiag is an example of a high quality, market leading distributor,” says Frank Ehmer of private equity firm Apax Partners, Rhiag’s owner that made the sale. “We believe the company is well-positioned to achieve success under LKQ ownership.”
Already exporting to more than 70 nations, Rhiag has long been growth-oriented under its umbrella of regional brands:
- Rhiag and Bertolotti – Italy
- Era – Italy and Spain
- Rhiag RGL – Switzerland
- Elit Group – the Czech Republic, Slovakia, Romania, Poland and Ukraine
- Lang – Hungary
- Auto Kelly – the Czech Republic, Slovakia and Bulgaria.
Italy’s and Switzerland’s distribution networks operate under a 3-step model while Eastern Europe favors a 2-step method.
Significant demand
From 2012 through 2014 Rhiag experienced an average sales growth of 6.4 percent with an average adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) margin of 11.4 percent.
“Over the years we have strengthened our relationships with the most outstanding parts manufacturers in the aftermarket worldwide,” says Rhiag in a statement of its attributes.
The vast lineup of the company’s current manufacturer suppliers includes Bosch, Brembo, Continental, Contitech, Federal-Mogul, Mann+Hummel, Schaefller, TMD Friction and Valeo.
“We have established strong business relations and significant IT synergies in order both to optimize our supply chain and to have a clear vision of the real demand of the markets where we operate according to the evolution of the vehicles in circulation,” the company continues.
Each nation is served by specific programs aimed at increasing the levels of professionalism, managerial expertise and technical skills while also encouraging effective business strategies among the respective customer bases.
“That’s why we have created innovative and steadily updating e-commerce platforms, which are both the main purchase channel and the effective way to exchange business information,” says Rhiag.
An affiliated network of selected high-functioning repair shops has also been established to meet localized needs under a variety of nation-specific brands such as Rhiag, DediCar, Optima Truck Service, Auto Kelly Auto Service, Elit Partner and Liqui Moly.
Rhiag’s assorted customer portfolios are characterized by a low degree of market concentration that is large and readily addressable with appealing fundamentals, according to LKQ, which anticipates that it can either maintain or obtain No. 1 and No. 2 market shares throughout the region. In several of Rhiag’s existing No. 1 markets it is several times larger than the closest competitor.
Italian drivers present a significant demand for used vehicles as 2014 sales exceeded 2.6 million units, reports Andrea Rosa of the U.S. Commercial Service, who is based in Milan. He adds that alternative-fueled vehicles represent a sizable share of the Italian car market as well, comprising 16.1 percent of all the vehicles sold in 2014 – making it one of the largest alt-fuel markets throughout the European continent, covering Compressed Natural Gas, Liquefied Petroleum Gas, hybrid and electric models.
According to Gianmarco Giorda, the director of ANFIA, the Italian Association of the Automotive Industry, Italy’s overall new-car market is also notching noteworthy growth as 2015 sales amounted to more than 1.5 million vehicles, up 15.8 percent over 2014. New registrations of domestically produced nameplates rose by 18.3 percent over 2014, encompassing 448,000 vehicles.
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