American Capital Invests $5.0 Million in The Parts Plus Group
25 October 1999
American Capital Invests $5.0 Million in The Parts Plus Group
BETHESDA, Md., Oct. 22 -- American Capital Strategies, Ltd.
today announced it invested $4.4 million in senior subordinated
debt with detachable warrants and $555,000 in convertible preferred stock of
The Parts Plus Group, Inc. The American Capital investment will be used to
fund The Parts Plus Group's continuing acquisition program.
The Parts Plus Group, which is led by its management team and an
investment group, is a rapidly growing auto parts distributor in the eastern
United States. Sterling Ventures Limited and RFE Investment Partners will
increase their equity investment in The Parts Plus Group in conjunction with
this acquisition.
The Parts Plus Group serves new car dealers, fleets owned by
municipalities and other organizations, independent and chain store repair
shops, and independent auto parts retail stores. It is the largest member of
The Parts Plus Association, one of the largest industry buying groups in the
United States, operating from 103 locations and carrying a full line of
replacement component parts for automobiles and light trucks.
American Capital Principal Ira Wagner commented, "This is a great
investment in a group that is growing by acquisition and is successfully
integrating each new company into their group. The Company has strengths with
many different types of customers, and the seasoned management team is working
closely together to expand on the individual strengths of each division across
the Company. We look forward to supporting The Parts Plus Group in its
continued expansion and to working with its innovative management team."
"American Capital has supported us with capital to continue to grow in a
fragmented market. The financing will enable us to expand into new geographic
regions and more effectively serve our customers in the Mid-Atlantic region,"
commented William Macey, Jr., Chairman of The Parts Plus Group and a Principal
of Sterling Ventures Limited.
"In our second transaction of the quarter, we are proud to join with
investors from John Hancock to support Sterling Ventures Limited, RFE
Investment Partners and the management team of The Parts Plus Group. As a
public company, American Capital provides one of the very few opportunities
for individual investors to participate in private equity transactions of this
type, and to benefit directly, through our dividend and asset growth, in the
superior returns they can produce. We are pleased to add The Parts Plus Group
as our 30th portfolio company," stated Adam Blumenthal, President and COO of
American Capital.
For more information on this transaction please visit http://www.american-
capital.com/portfolio/partsplus.html. For more information about our portfolio
companies, please visit
http://www.americancapitalonline.com/about_american_capital/transaction_histor
y.cfm.
American Capital is a buyout and specialty finance company with capital
resources exceeding $360 million. American Capital invests in senior debt,
subordinated debt and equity in middle market companies in need of capital for
growth, acquisitions, ESOP buyouts, management buyouts, liquidity and
restructurings. Through http://www.AmericanCapitalOnline.com financing is provided
to small and middle market companies in need of capital for receivable and
inventory financing, working capital loans, machinery and equipment loans,
real estate loans, construction financing, acquisition funding, management
buyouts, ESOP financings, liquidity and restructurings.
This press release contains forward-looking statements that are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The statements regarding expected results of American
Capital Strategies are subject to various factors and uncertainties, including
the uncertainties associated with the timing of transaction closings, changes
in interest rates, availability of transactions, changes in regional or
national economic conditions, or changes in the conditions of the industries
in which American Capital has made investments.
The Parts Plus Group Gears Up With New Acquisition
October 22, 1999
By Maureen Flanagan
The Parts Plus Group, Inc., a distributor of auto parts serving
independent and chain car repair shops, new car dealers, municipalities and
other fleet owners in the Eastern United States, is moving into high gear as
it makes its fifth acquisition in two years. Founded in 1997, Parts Plus has
energetically pursued an acquisition strategy, purchasing several closely
held, family-owned companies. As a result, it has grown to include six
distributors operating in 103 East Coast locations from Massachusetts to
Florida. On October 21, 1999, it completed the purchase of yet another
company, Parts Distributors, Inc. (PDI), a mid-Atlantic warehouse distributor.
This acquisition was supported by financing from several investor groups and
American Capital Strategies, Ltd. , which together provided a
total financing package of $27 million in subordinated debt and convertible
preferred stock. With its latest acquisition, Parts Plus becomes the fifth
largest national warehouse distributor serving the auto repair industry.
"Consolidation gives Parts Plus' individual distributors increased
purchasing power, operating efficiencies, and access to distribution and
software systems to move 30,000 to 50,000 products a day to repair locations
all over the East Coast," said company President and CEO Paul Lehr. "With our
latest acquisition, we expand our market in the mid-Atlantic and move into
managing inventory for municipal fleets of major East Coast cities," Lehr
said.
Parts Plus has successfully carved out a niche in the "do-it-for-me"
sector of the auto repair industry, a $60 billion market that provides auto
repair shops and other customers with the parts they need to provide same day
service. This niche business is supported by an extensive warehouse and parts
delivery system that usually includes jobbers, or wholesalers who receive
parts from the warehouse and deliver to the service location. A typical
warehouse carries nearly 200,000 different replacement and component parts for
automobiles and light trucks from various manufacturers, and its jobbers may
carry more than 30,000 products. Parts Plus uses state-of-the-art computer
inventory and tracking systems so that the necessary parts get from the
warehouse to the jobber to the customer in time for same-day repair service.
Some warehouses regularly deliver to installers and jobbers twice a day and
some make more than four daily deliveries. Parts Plus is the largest member
of The Parts Plus Association, the country's third largest association of auto
parts distributors, giving it significant leverage in the marketplace.
The company was founded in 1997 by industry veteran Lehr, who had been
President since 1980 of Motor Age, a distributor operating in the New York
metro area. Lehr sold a portion of Motor Age to investors and, at the same
time, the company merged with The Parts House, Inc., a distributor in the
Southeast operating 20 warehouses and selling auto parts to new car dealers,
service chains such as Goodyear and fleet accounts.
Parts Plus quickly began a series of acquisitions, starting in April 1998
with Brookside Automotive, a small warehouse chain in Southern New England.
It then began to acquire warehouses that also operated their own captive
jobber locations directly. In October 1998, the company purchased Davie
Automotive, Inc., a chain of 21 jobber locations in North Carolina and South
Carolina serviced by three regional warehouses. In December 1998, the company
acquired Mechanics Auto Parts, Inc. (MAPI), a chain of 21 New Jersey and
Pennsylvania stores serviced by one central warehouse. Both Davie and MAPI
were well-established closely held companies serving independent and chain
repair shops in the "do it for me" market. Their additions increased the
company's profitability -- making the move to owning jobber locations directly
and sustaining the profitability of those locations central to the company's
success.
To continue its strategic acquisition strategy, the company began looking
for additional capital through financial partnerships that would support its
growth. In October 1999, Parts Plus teamed with American Capital and other
investors, including John Hancock, Citizens Capital, and IBJ Whitehall Capital
Corporation, raising a total of $27 million. The transaction was arranged by
Sterling Ventures Limited (Sterling), an investment firm with $75 million in
investments, and by RFE Investment Partners (RFE), a firm that has raised and
invested more than $600 million in 115 companies through six investment
partnerships. Sterling and RFE are the principal shareholders of Parts Plus
along with the prior owners of the acquired companies.
For its part, American Capital invested $4.44 million of senior
subordinated debt and $555,000 of convertible preferred stock. With capital
resources exceeding $360 million, American Capital provides middle market
companies with subordinated debt, senior debt and equity to support
acquisitions, growth, employee and management buyouts, liquidity and
restructurings. American Capital's investment portfolio includes growth
acquisitions and roll-ups for middle market companies in diverse industries.
For example, in September 1998, American Capital invested in Cycle Gear, an
ESOP company that has grown into the largest multi-store retailer of
motorcycle parts in the country. In March 1999, American Capital financed
Auxi-Health, Inc., a rollup of home health care providers in the Midwest and
South, and later provided additional funding for a follow-on acquisition.
American Capital's portfolio includes companies in a wide range of industries
from kayaks and canoes to small aircraft manufacturing.
"Parts Plus has an excellent collective management team, many of whom have
in-depth knowledge and expertise from a lifetime of experience in the
industry," said Ira Wagner, American Capital Principal. "The managers will
for the most part continue to run their individual businesses; while at the
same time they will gain access to increased purchasing power, a central
organization, and an expanded system of operations," Wagner added.
With this new financing, Parts Plus acquired PDI, a family-owned business
that had been in operation for 75 years. PDI is a growing chain of seven
warehouses serving independent and chain repair shops. It also manages the
parts inventory for the municipal fleets of several mid-Atlantic cities. PDI
has been a member of the Parts Plus Association of buyers for 15 years.
The Parts Plus Group has established a solid platform in the auto sales
"aftermaket" industry, historically a stable industry resistant to
macroeconomic cyclicality. (In times of economic downturn, people tend to fix
old cars rather than buy new ones.) Of the total 1998 aftermarket sales of
about $92 billion, $60 billion were sold in the "do-it-for-me" category and
$30 million were purchased in the "do-it-yourself" category. As the third
largest buying group after NAPA and Carquest, The Parts Plus Association
purchases about $1 billion auto parts annually through its association of
buyers, giving it the advantage of volume purchasing power. It sells most
automotive parts under manufacturer brand names instead of using its own name.
Many customers prefer this practice, which is not commonly used by other large
buying groups.
With its large network of warehouses and jobbers, The Parts Plus Group has
logistic advantages in the market, which includes Southern New England, the
New York Metropolitan area, Southern New Jersey, Philadelphia region, North
Carolina and Florida. Its growing network of warehouses and jobbers enables
the company to get the parts to the service locations quickly and efficiently
and at lower cost. It also has access to the superior information systems
developed at MAPI, which it plans to implement into the overall organization.
In the auto parts business, superior software translates into superior
customer service.
As a relatively large player in a fragmented market, Parts Plus expects to
explore further acquisition opportunities and will be a likely buyer for other
Parts Plus Association members whose owners may seek liquidity for their
investment in the future. And, with the purchase of PDI, the company becomes
a leader in fleet management contracts, a segment of the market it plans to
grow.
"With our continuing expansion and anticipated further acquisitions of
auto parts distributors in the Eastern United States, we look forward to
providing a level of customer service unequalled in the market," Lehr said.
"We have high expectations for Parts Plus as we gear up for the next
millennium."