Digital Auto Care Factbook 2016 - 34

SELECT AUTO CARE TRANSACTIONS

BB&T Capital Markets and M&A Overview
2014 Aftermarket M&A Overview. Following a relatively steady
market in 2013, M&A activity roared back and eclipsed 2013 levels
in 2014:
* 124 M&A deals closed in the aftermarket, primarily driven by the
"middle market" (or deal values less than $1 billion) versus 89 in
2013, an increase of more than 39%
* Private equity investors made 20 "platform" acquisitions (a new
investment in a sector for a private equity firm), up 25% from
2013, bringing the total number of aftermarket private equityowned businesses to 159 in 2014
* Strategic buyer activity increased significantly, with 104
aftermarket transactions in 2014 versus 72 in 2013, an increase of
approximately 44%
* Suppliers or retailers / distributors accounted for 75 deals in
2014, up from 67 deals in 2013, and accounted for over 60% of
aftermarket M&A volume during the year
Importantly, 2014 was characterized by strong demand driving
aggressive buyer behavior:
* Buyers remained hungry for quality deals and, as a result, sell-side
processes generated high levels of interest from both domestic
and international buyers
* Competition among financial sponsors, along with historically high
leverage levels and persisting low debt pricing, drove valuations
higher and prompted more robust diligence prior to exclusivity

M&A Outlook for 2015. The first quarter of 2015 showed no
signs of a slowdown, and we expect the favorable industry drivers
supporting M&A for the last three years to continue to look positive
where an elevated level of deal activity in 2015 remains on par with
2014.
* Strategic and private equity buyers maintain near-record levels of
cash and they will face increasing pressure over time to deploy it in
acquisitions or return it to shareholders or limited partners
* Macroeconomic conditions continue to improve
* Aftermarket companies are actively pursuing consolidation
opportunities
Despite these positive trends, we expect that interest rates will rise
in 2015, which will challenge strategic buyers by reducing corporate
cash flows and will limit private equity buyers' access to cheap capital.
Favorable industry drivers will continue to support deal volume in
the aftermarket in 2015.
* The BB&T Aftermarket Index gained 25.9% versus the S&P 500's
12.4% in 2014 and each segment of the aftermarket outperformed
the S&P 500
* Sales growth is expected to provide support for continued stock
market gains during the next year
* Similar to 2014, favorable tailwinds are expected to support
continued aftermarket growth from a macro perspective:
- The light vehicle fleet continues to grow and is projected to
approach 260 million light vehicles by 2016

* Strategic buyers continued to aggressively pursue acquisitions
as a means to supplement growth, underwriting higher levels
of synergies

- The average age of vehicles on the road is at a record high of
11.4 years and is expected to rise, underscoring the need for
consumers to maintain older vehicles and creating tailwinds
for sustained industry growth

* Improved macroeconomic conditions, rising consumer confidence,
and decreasing unemployment continued to drive transaction activity

- New light vehicle sales are expected to approach 17 million in
2015, which will particularly benefit the collision segment
- Depressed gas prices support a rising trend in miles traveled

AUTOMOTIVE AFTERMARKET DEALS BY QUARTER

LARGE INVESTOR CASH BALANCES SUPPORT M&A
($ IN BILLIONS)
$1,410

32

33

31

28

$1,010

28
21

19

$1,430

34
$1,090

$1,050

$1,023

$1,002

$1,050

21

$405

$412

$402

$403

$446

$474

$460

$277

Q1

Q2

Q3

Q4

Q1

2013

Source: BB&T Capital Markets

Q2

Q3
2014

Q4

Q1
2015

2007

2008

2009

2010

2011

2012

2013

2014

Cumulative Private Equity Uninvested Capital
S&P 500 Non-Financial Aggregate Cash Balances
Source: S&P 500; Buyouts Magazine
7

34

2016 Digital Auto Care Factbook Copyright © 2015 Auto Care Association
http://www.bbtcapitalmarkets.com
Digital Auto Care Factbook 2016

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