DOES ADVANCE DEAL SERVE AS NOTICE?

I have to admit that in the past when have I mulled over which U.S. aftermarket business would become the next player in Canada, Advance Auto Parts was not at the top of the list.

While there is no indication that you will see an Advance Auto Parts sign on Canadian soil any time soon, the organization’s impending purchase of General Parts International Inc., the largest Carquest member and outright owner of Carquest Canada, does place them unequivocally in the Canadian market.

And I am sure I am not alone in suggesting that this acquisition came as a surprise to many – some stock analysts had saddled Advance with an “underperform” rating 24 to 48 hours before the announcement, upon which the stock surged about 20% – which is just to say that reading that others had missed this one made me feel the same way I do when I see Tiger Woods hit a rare bad shot: if he can shank it, however rarely, maybe there’s hope for me yet.

Thinking a bit more deeply though, General Parts was known to have been looking for suitors. And surprise or no, this is a game changer, creating as it does a network to rival AutoZone as the largest in North America. Those in the know estimate that this deal will turn Advance from a retail-heavy business (65% of its store sales), to one where more than half of its revenues will be from the commercial segment.

Granted, the impact will be felt most keenly south of the border, and perhaps little or not at all in Canada, but it does make one think about what the future might bring.

For one, the deal shifts the balance of cross-border organizations within the aftermarket. Alongside Uni-Select and Genuine Parts Inc. (parent of UAP Inc.), Advance becomes the third significant player with holdings in Canada and the U.S., and the largest by some measure. Looked at a certain way, it makes other large players in the U.S. appear like they’re limiting themselves by not looking north.

While speculation had quieted somewhat over the past few years about AutoZone’s intentions north of the border, both as a matter of practicality as it pushed further south in Mexico and as the U.S. economy cooled, for many I believe it is still among the likely suspects to forge northward.

Frankly, there weren’t really any other players that approached the likelihood of a Canadian expansion, though they undoubtedly have the resources. O’Reilly’s, though I have never seen an indication of its interest north of the border, was certainly next on the list. With its acquisitive history and considerable resources, I doubt that few would have been overly surprised.

Even Manny, Moe and Jack – The Pep Boys – were at least occasionally noted as contenders in informal banter at industry events. But it was always really AutoZone that was the focus of most attention and speculation.

From a larger perspective, the move should provide anyone in the traditional aftermarket with a great deal of confidence about the future of this industry. Advance didn’t buy into the traditional aftermarket for the glamour; it bought into it for the future earnings.

The wise minds at the Wall Street Journal say that the acquisition enables Advance to penetrate more deeply into the commercial market – which it does – and holds great potential benefits for them. “With cars becoming more sophisticated and complex, and with increasing amounts of electronics in them, more auto parts are being sold through that channel as opposed to so-called do-it-yourself buyers.”

I don’t have a crystal ball, but when the investment community starts talking like that, and including Canada in the conversation, I can’t honestly say I’ll be surprised if there’s another deal cooking on the horizon.

—Andrew Ross, Publisher and Editor aross@jobbernews.com