Advance Auto Parts To Acquire General
Parts International
Creates Largest Automotive Aftermarket Parts Provider in North America
Investor/Analyst Conference Call
October 16, 2013
Forward Looking Information
Certain statements contained in this communication are forward-looking statements, as that term is used in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements address future events or developments, and typically use words such as believe, anticipate, expect, intend, plan, forecast, outlook or
estimate. These forward-looking statements include, but are not limited to, statements regarding the expected timing of the completion of the proposed acquisition of
GPII by AAP; the benefits and other effects of the proposed transaction; the combined company’s plans, objectives and expectations; the terms and timing of
anticipated financing relating to the proposed transaction, including statements regarding AAP’s commitment and ability to maintain its investment grade credit rating;
expected growth and future performance of AAP, including store growth, capital expenditures, comparable store sales, SG&A, operating income, gross profit rate, free
cash flow, profitability and earnings per diluted share for fiscal year 2013; expected financial results for the third quarter 2013 as well as the full year 2013; and other
statements that are not historical facts. These forward-looking statements are subject to significant risks, uncertainties and assumptions, and actual future events or
results may differ materially from such forward-looking statements. Such differences may result from, among other things, the ability to close the proposed transaction
on the expected terms and within the anticipated time period, or at all, which is dependent on the parties’ ability to satisfy certain closing conditions; the risk that
regulatory approvals that are required to complete the proposed transaction may not be received, may take longer than expected or may impose adverse conditions;
the failure to obtain the necessary financing for the transaction, including as contemplated by the financing commitment obtained by AAP at the time of signing the
proposed transaction; the risk that the benefits of the proposed transaction, including synergies, may not be fully realized or may take longer to realize than expected;
the possibility that the transaction may not advance AAP’s business strategy; the risk that AAP may experience difficulty integrating GPII’s employees, business systems
and technology; the potential diversion of AAP’s management’s attention from AAP’s other businesses resulting from the proposed transaction; the impact of the
proposed transaction on third-party relationships, including customers, wholesalers, independently owned and jobber stores and suppliers; the continuing review and
other procedures associated with the closing of AAP’s third quarter 2013 results which may produce results or expectations for the third quarter 2013 and full year
2013 to differ from those set forth herein; changes in regulatory, social and political conditions, as well as general economic conditions; competitive pressures;
demand for AAP’s and GPII’s products; the market for auto parts; the economy in general; inflation; consumer debt levels; the weather; business interruptions;
information technology security; availability of suitable real estate; dependence on foreign suppliers; and other factors disclosed in AAP’s 10-K for the fiscal year ended
December 29, 2012 on file with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements.
With respect to the preliminary financial results and outlook included in this communication, during AAP’s closing process and the preparation of final consolidated
financial statements and related notes, AAP may identify items that would require adjustments to amounts included in the preliminary results. AAP intends these
forward-looking statements to speak only as of the time of this communication and does not undertake to update or revise them as more information becomes
available.
Non-GAAP Measures
This communication includes certain financial measures which are not considered generally accepted accounting principles (“GAAP”) measures. Advance Auto Parts
believes that presentation of these non-GAAP financial measures provides useful information to management, investors and prospective investors. Because of the
forward-looking nature of these non-GAAP financial measures, specific quantifications of the amounts that would be required to reconcile these non-GAAP financial
measures to their most directly comparable GAAP financial measures are not available at this time. In addition, Advance Auto Parts believes that providing estimates
of the amounts that would be required to reconcile these non-GAAP financial measures to their most directly comparable GAAP financial measures would imply a
degree of precision that would be confusing or misleading to investors. The actual amounts of any non-GAAP financial measures included in this communication may
differ materially from any forecasted amounts, and any non-GAAP financial measures included in this communication might not be calculated in the same manner as,
and thus might not be comparable to, similarly titled measures reported by other companies.
2
2
A Compelling Value Proposition
Creates the #1 Automotive Aftermarket Parts Provider In North America
Balanced platform for growth between DIY and commercial
#1 distributor of import automotive parts
The largest internet-based business-to-business e-commerce platform in North America
•
•
•
Delivers Scale
•
•
•
•
Coast-to-coast North American coverage
Positioned to capitalize on attractive industry growth trends
Presence in new markets allows Advance the ability to expand its geographic footprint efficiently
Increased operational efficiencies driving cost synergies
Accelerates Complementary Market Opportunities
•
•
•
Access to new products and lines such as tools, equipment and automotive paint, heavy-duty trucks and agricultural equipment
to drive growth
Diversifies sales channels with independent customers
Broadens ability to grow with attractive key customer segments including large bay garages, import specialists, national
accounts, fleet and government programs
Strengthens Leading Brands and Capabilities
•
•
•
Leverage CARQUEST’s commercial capabilities and team member parts knowledge
Efficiently expand CARQUEST’s key capabilities, including daily replenishment and customer loyalty programs, into Advance
stores
Expand Advance’s DIY capabilities into select company operated CARQUEST stores
Financially Compelling
•
•
•
1Last
Combined LTM Revenue1 of $9.2 billion
Estimated to deliver significant FY14 Cash EPS accretion of more than 20% excluding costs to achieve synergies and low teens
accretion including costs to achieve synergies
Expected to generate approximately $160 million in annual run-rate cost synergies within three years after closing
twelve months as of Q2 2013
3
Creates Largest Automotive Aftermarket Parts Provider in
North America
Post transaction
Footprint / Stores¹
• 4,018 stores in 39 states
• 86% of stores in the eastern half of
U.S.
• 12 distribution centers
Commercial/DIY
Mix²
Commercial
40%
DIY
10%
Commercial
90%
• 5,264 company operated stores in 49
states, and Canada
• 1,418 independent locations in US,
Canada
• 102 WORLDPAC branches
• 50 distribution centers
Commercial
55%
DIY
60%
DIY
45%
LTM Revenue2
$6.3 bn
$2.9 bn
$9.2 bn
Team Members1
~54,000
~ 17,000
~ 71,000
¹For Advance Auto as of October 5, 2013; GPII as of September 30, 2013; 2Last twelve months as of Q2 2013
4
• 1,246 company operated stores
• 1,418 independent locations in US,
Canada
• 102 WORLDPAC branches
• 38 distribution centers
4
Two Leading Commercial Brands and Platforms
General Parts’ leadership team
with extensive industry experience
to remain with the company
O. Temple
Sloan III
President, GPII
David L.
McCartney
President,
CARQUEST US
Robert B.
Cushing
President,
WORLDPAC
Steven P.
Gushie
President,
CARQUEST CAN
30 Years
27 Years
28 Years
32 Years
CARQUEST distributes to commercial and retail customers,
accessories, supplies and equipment for virtually all makes
of domestic and foreign vehicles, light and heavy-duty
trucks, off-road equipment, buses, recreational vehicles
and agricultural equipment
• $ 1.9 billion in LTM revenue through Q2 20131
• Strength in key customer segments (fleet, gov’t, national
accounts); key commercial capabilities (daily replenishment,
commercial loyalty offerings); diverse channel mix (company
operated stores and independents)
• WebLink is the second largest internet based, commercial
focused site in the industry – behind WORLDPAC
• Passion for excellence has earned numerous preferred
supplier endorsements from leading national customers
1
Last twelve months as of Q2 2013
5
5
Leading importer and distributor of original equipment and
quality replacement automotive products to import
specialists in North America and Puerto Rico
• $1 billion in LTM revenue through Q2 20131
• Industry leading position in growing import car population
and installer base
• speedDIAL is the most widely used and advanced B2B ecommerce catalogue and order fulfillment program in the
industry (over 7.1 million applications / 250,000 part
numbers)
• In 2011, US Automotive Technicians Choice: Overall Best
Program Distributor for Replacement Parts – Frost & Sullivan
Positions Advance To Capitalize On Industry Dynamics
With Balanced Commercial And DIY Platform
Combined
AAP & GPI
$10
$9
THE COMMERCIAL MARKET IS
TWICE THE SIZE OF DIY BUT HIGHLY
FRAGMENTED AND EXPECTED TO
2012 Sales ($ in Billions)
$8
OUTPACE DIY GROWTH
$7
• DIY and commercial
combined addressable
market estimated at $60
billion1
$6
$5
$4
• Approximately 240 million
vehicles in operation with an
average age of over 11 years
$3
$2
$1
$0
Information as of respective company’s 2012 Annual Reports
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2012 Store Count (Includes Independents)
6
6
8,000
• Increasing vehicle complexity
will facilitate increase in
professional installer
expertise
1Source:
Company estimate
Well Positioned To Serve The Fast Growing Import
Automotive Segment
The Leader In Import Parts Distribution With $ 1.3 Billion in Combined Sales2
+
• A customer-centric
approach
• Excellence in:
Percentage of total import V.I.O. (vehicles
in operation)1
―
―
―
―
―
Product offering
Operational efficiency
Customer relationships
Global Supply Chain
Original Equipment
Catalog
• Leveraging technology to
enable sustained sales
growth
1Source:
7
2014 AAIA Aftermarket Factbook; 2Last twelve months as of Q2 2013
7
Enhancing Our Platform To Accelerate Growth
8
INDEPENDENTS
DAILY
REPLENISHMENT
HEAVY DUTY
FLEET
SOLUTIONS
NATIONAL
ACCOUNTS
TECH-NET
AUTO SERVICES
A Leading E-Commerce/E-Services Platform Driving
Further Growth
A Formidable E-Commerce Line Up
WORLDPAC -speedDIAL
CARQUEST WebLink
+
ADVANCE e-Services
+
•
speedDIAL and WebLink collectively define the commercial B2B ordering landscape as the largest internetbased, commercial-focused sites in the industry
•
The combination with Advance’s MOTOSHOP branded e-Services creates a robust e-commerce growth
platform
Over half of all DIY’ers start their purchase process on-line today…will be 90% in 5 years
(AASA/Booz & Co.: “E-Tailing Supplier Success Strategies”, 2013)
Access to robust online information is a key competitive differentiator in driving sales growth, customer loyalty
and retention for commercial and do-it-yourself customers
•
9
9
A Proven Record Of Integration Success
Advance has a rich 80-year history of growth through new store openings, acquisitions and expansion
into the commercial business. We have a proven track record of integrating new businesses into
Advance successfully.
A History of
Successful
Acquisitions
New Additions
Through GPI
Acquisition
10
Page
10
Complementary Operational Strengths And Shared
Values
80 year track record of delivering growth
through acquisitions and performance
Experienced management team focused
on developing commercial culture
Merchandising and supply chain
investments enables growth
and profitability
Deeply invested in giving back to the
community; $35 million donated to JDRF
11 11
130 years of business
building success
A mutual platform of
trust and working experience
with recent BWP integration
Strong alignment of cultures
and company values
50 year track record of growth through
acquisitions, and delivering
business strategies
Senior management averages approx.
30 years of industry experience
WORLDPAC recognized as World-Class
Organization and consistently named a
“Best Place to Work”
40 years of market leading import
experience and expertise
Transaction Summary
Structure and
Consideration
Combined Financial
Metrics
Compelling Financial
Impact
Approvals and Closing
1Transaction
•
$2.04 billion all cash transaction (enterprise value)
•
Represents EV / Adjusted EBITDA (excluding synergies)1: 9.3x
•
Represents EV / Adjusted EBITDA (including run-rate synergies) 1,3: 5.4x
•
J.P. Morgan has provided an unsecured bridge financing commitment to support a senior notes offering
and new term loan facility
- Senior notes offering and bank debt syndication expected to occur prior to closing
•
Strong combined financial profile allows for an all cash transaction with the expectation to maintain
investment grade ratings
•
$9.2 billion in LTM Revenue2
•
$1.1 billion in LTM EBITDA2
-
Approximately $1.3 billion in pro forma LTM EBITDA including run-rate cost synergies2, 3
•
The transaction is expected to generate approximately $160 million in annual run-rate cost synergies
within three years after closing
•
Estimated to deliver in FY14:
−
Significant Cash EPS accretion including synergies of greater than 20% (excluding the one-time
costs to achieve synergies)
−
Low teens Cash EPS accretion including synergies (including the one-time costs to achieve
synergies)
•
The transaction has been approved by the boards of directors of both companies
•
Subject to customary closing conditions and regulatory approvals
•
Expected to close by late 2013 or early 2014
multiple as of FYE2013. EBITDA adjusted for non-recurring transaction related expenses; 2Last twelve months as of Q2 2013; 3Assumes run-rate cost synergies of $160mm
12 12
Combined Financial Overview
Standalone Advance Auto Parts
Transaction Pro Forma
•
Business mix and geographic reach provide
solid platform for top line growth
1
•
Significant synergy realization drives
incremental value creation
1
•
Incremental operating efficiencies drive
margin improvement opportunity
•
Strong cash flow supports investment grade
rating and ongoing investment in the business
1, 5
1Last
twelve months as of Q2 2013; 2Revenue and EBITDA have been presented on a comparable operating basis. Refer to our 2012 Form 10-K for a further explanation of non-recurring items in 2008 and 2009 ; 3EBITDA is earnings before interest, income
taxes, depreciation and amortization; 4Free Cash Flow is the aggregation of cash flow from operating and investing activities, adjusted for the change in financed vendor accounts payable; 5Excluding the acquisition of BWP
13 13
Cost Synergies
Significant Cost Savings Provide Opportunity For Incremental Value Creation
Estimated Cost Synergies
By Year (in Millions)
Estimated Synergies
$160m
(End of Year 3)
$160
• Purchasing
$100
• Store/Corporate
Scale and Leverage
$50
• Supply Chain
One Time Costs To Achieve Synergies Estimated at $190m over 3 Years
• Store Conversion Costs
14 14
• Systems Integration Costs
• Project Costs
Financing and Liquidity
Financing
Liquidity
Expected financing includes a combination of:
•
−
term loan
−
revolver
−
senior notes
−
balance sheet cash
•
J.P. Morgan has provided committed financing for the transaction
•
Company expected to maintain investment grade ratings post
transaction
•
Public commitment to limit maximum leverage to 2.5x Adj.
Debt/EBITDAR and maintain investment grade ratings
•
Focused on pursuing rapid de-leveraging
•
Bank debt (between revolver and term loan) used to fund
acquisition expected to be repaid in less than 24 months
•
Liquidity position remains strong with ample free cash flow
generation
•
Capital allocation focused on increasing scale and operating
earnings growth while delivering estimated synergies
Adjusted leverage1
3
Liquidity2
Ratings
$750
$717
$596
$1,269
BB+ / -
BBB- / Baa3
BBB- / Baa3
BBB- / Baa3
$1,357
BBB- / Baa3
¹Defined as (gross debt + rents capitalized at 6.0x) / EBITDAR; 2 Defined as cash on hand + undrawn facilities, net of letters of credit; 3 Pro forma adjusted leverage ratio is for illustrative purposes only and is calculated based on historical financial
information as of Q2 2013 and as if the transaction closed on Q2 2013
15 15
This Transaction Positions Advance For A Strong Financial Future
GROWTH
PROFITABILITY
FINANCIAL
POSITION
16
•
Focused on increasing multi-channel sales growth and
accelerated operating earnings growth
•
#1 in commercial segment / #1 in import business
•
North American platform for growth/new stores
•
Significant and achievable cost synergies
•
Balanced commercial / DIY platform
•
Improved cost efficiency and execution
•
Strong liquidity position and commitment to investment grade
ratings
Maintain disciplined approach to capital deployment
Focus on shareholder returns
•
•
A Compelling Value Proposition
Creates the #1 Automotive Aftermarket Parts Provider In North America
Balanced platform for growth between DIY and commercial
#1 distributor of import automotive parts
The largest internet-based business-to-business e-commerce platform in North America
•
•
•
Delivers Scale
•
•
•
•
Coast-to-coast North American coverage
Positioned to capitalize on attractive industry growth trends
Presence in new markets allows Advance the ability to expand its geographic footprint efficiently
Increased operational efficiencies driving cost synergies
Accelerates Complementary Market Opportunities
•
•
•
Access to new products and lines such as tools, equipment and automotive paint, heavy-duty trucks and agricultural equipment
to drive growth
Diversifies sales channels with independent customers
Broadens ability to grow with attractive key customer segments including large bay garages, import specialists, national
accounts, fleet and government programs
Strengthens Leading Brands and Capabilities
•
•
•
Leverage CARQUEST’s commercial capabilities and team member parts knowledge
Efficiently expand CARQUEST’s key capabilities, including daily replenishment and customer loyalty programs, into Advance
stores
Expand Advance’s DIY capabilities into select company operated CARQUEST stores
Financially Compelling
•
•
•
1Last
Combined LTM Revenue1 of $9.2 billion
Estimated to deliver significant FY14 Cash EPS accretion of more than 20% excluding costs to achieve synergies and low teens
accretion including costs to achieve synergies
Expected to generate approximately $160 million in annual run-rate cost synergies within three years after closing
twelve months as of Q2 2013
17
18