MONTREAL — LKQ Corp. has signed a deal to buy Quebec-based Uni-Select Inc. in a roughly $2.8-billion deal that aims to boost the U.S. automotive equipment supplier's aftermarket business amid a thriving market.
Under the agreement, LKQ will pay $48 per Uni-Select share in cash for the aftermarket auto parts distributor. The purchase marks a 19.2 per cent premium over the $40.28 closing price of Uni-Select shares on the Toronto Stock Exchange on Friday.
The transaction, which needs shareholder approval, also requires antitrust clearances in Canada, the U.S. and the U.K. and approval under the Investment Canada Act.
LKQ chief executive Dominick Zarcone said the deal will bolster the company's vehicle parts distribution and broaden its presence in Quebec.
Uni-Select’s North American operations are a complement to LKQ’s existing footprint and will provide broader product distribution, Zarcone said in a news release.
In connection with the deal, Chicago-based LKQ said it plans to sell GSF Car Parts U.K., Uni-Select's U.K. based mechanical parts distribution business.
Uni-Select is known for the distribution of automotive paints, industrial coatings, accessories and other vehicle products for the aftermarket, which refers to parts and services purchased after the initial sale to the consumer.
Founded in Boucherville in 1968, the company has more than 5,200 employees, 15 distribution centres and more than 400 branches. It supports over 16,000 auto repair shops and another 4,000 shops through its repair-installer and vehicle refinishing banners.
Some of its 95 company-operated stores operate under the names Bumper to Bumper, Auto Parts Plus and Finishmaster.
The aftermarket — everything from tire changes to brake repair — saw sales jump over the past two years as supply chain snarls sparked by the COVID-19 pandemic pushed up prices, while some cash not spent on vacations went toward home and car improvements.
"The automotive aftermarket remained buoyant in 2022 with a majority of retailers seeing growing sales and expecting further growth throughout 2023," Andrew King, managing partner at DesRosiers Automotive Consultants, wrote in a note this month.
"However, persistent issues surrounding parts supply and prices remain problematic across the industry."
Desjardins analyst Benoit Poirier said LKQ's offer for Uni-Select was "opportunistic."
"The market believes there is further upside to be captured," he said in a note to investors, contrasting the $52-per-share average target stock price with the $48-per-share purchase price.
"On the other hand, management and shareholders might be happy with the current offer given where the stock was about two years ago — $9.07 prior to Brian McManus’s appointment as executive chair — the possible lack of interest in the GSF asset, its small size vs. the gorilla U.S. players and the possible difficulty in Uni-Select closing a transformative deal at a reasonable valuation."
Poirier added that he would "not be surprised" if an activist investor or large U.S. parts player presents another offer, noting that the breakup fee is unknown.
In a phone interview, McManus said the board of directors is ultimately responsible for weighing the deal.
"Is a guaranteed price at $48 better than a higher price in the future with the associated risks? This is the question that a shareholder must ask himself. We think the price is right," the CEO said.
This report by The Canadian Press was first published Feb. 27, 2023.
Companies in this story: (TSX:UNS)
— With files from Stéphane Rolland.
Christopher Reynolds, The Canadian Press