Advance Auto Parts to divest Worldpac to Carlyle for $1.5bn, aims for streamlined operations

Advance Auto Parts, Inc. (NYSE: AAP), a prominent name in the North American automotive aftermarket parts industry, has agreed to sell its wholesale distribution division, Worldpac, Inc., to global investment firm Carlyle Group (NASDAQ: CG) for $1.5 billion in cash. This deal, expected to close by the end of 2024, marks a significant strategic shift for Advance Auto Parts as it refocuses on its core business segments.

Strategic Refocus and Financial Flexibility

The sale of Worldpac aligns with Advance Auto Parts’ strategic goal of streamlining its operations and enhancing its focus on its blended box business, which combines various automotive parts and services into a unified offering. Shane O’Kelly, President and CEO of Advance Auto Parts, highlighted that the proceeds from the sale would be pivotal in strengthening the company’s financial position and investing in future growth. “The sale enables our team to sharpen their focus on decisive actions to turn around the Advance blended box business,” said O’Kelly. He added that the transaction would provide greater financial flexibility, facilitating a strategic and operational review aimed at boosting the productivity of the company’s remaining assets.

This strategic move is part of Advance Auto Parts’ broader effort to optimize its business structure and capitalize on emerging opportunities within the automotive aftermarket sector. By divesting Worldpac, Advance Auto Parts is positioning itself to better address market dynamics and enhance its competitive edge in core business areas.

Carlyle’s Acquisition Strategy

Carlyle Group, known for its extensive experience in managing complex carve-outs, is acquiring Worldpac to expand its portfolio in the industrials sector. Carlyle’s investment in Worldpac reflects its strategy to leverage high-potential businesses and drive growth through operational improvements and strategic investments. “We are excited to partner with Worldpac, a great business operating in attractive markets,” said Wes Bieligk, Partner at Carlyle, and Katherine Barasch, a senior member of Carlyle’s Global Industrials investing team. They noted that Carlyle’s proven track record in executing industrial carve-outs positions it uniquely to support Worldpac as an independent entity.

Carlyle Group’s industrials portfolio includes notable investments such as Axalta Coating Systems, Nouryon, Atotech, Signode, and Allison Transmission, illustrating its deep expertise in managing and growing industrial businesses. The firm’s acquisition of Worldpac will further bolster its presence in the automotive aftermarket industry.

Transaction and Financial Details

In the past year, Worldpac generated approximately $2.1 billion in revenue and $100 million in EBITDA, highlighting its substantial role in the automotive parts wholesale market. Advance Auto Parts anticipates net proceeds of around $1.2 billion from the sale, after accounting for taxes and transaction fees. This significant sum underscores the financial impact of the deal and its potential to strengthen Advance Auto Parts’ balance sheet.

The transaction involves several key advisors: Centerview Partners and Hogan Lovells US, LLP are advising Advance Auto Parts, while BofA Securities and BMO Capital Markets are acting as financial advisors to Carlyle. Latham & Watkins is providing legal counsel to Carlyle, ensuring that both parties are well-supported throughout the transaction process.

Implications for Stakeholders

For Advance Auto Parts, this divestiture represents a crucial step in refining its operational focus and enhancing its market position. The sale of Worldpac will allow the company to channel resources into its core automotive parts and services business, potentially driving innovation and improving customer offerings. It also highlights Advance Auto Parts’ commitment to adapting its business strategy to better align with evolving market conditions and growth opportunities.

For Carlyle Group, the acquisition of Worldpac represents a strategic addition to its industrials portfolio. By leveraging its expertise in managing carve-outs and driving operational improvements, Carlyle aims to unlock new growth potential for Worldpac and capitalize on opportunities within the automotive aftermarket sector.

Overall, this transaction reflects broader trends in the automotive and investment industries, where strategic realignments and targeted investments are driving growth and transformation. Both Advance Auto Parts and Carlyle Group are poised to benefit from this strategic move, with implications for their respective market positions and future growth trajectories.