Over the past few decades, private equity has come for just about everything under the sun. It’s bankrupted Red Lobster, gobbled up automotive media brands, and led to merger after merger in all sorts of industries. Obviously, it was only a matter of time before private equity turned its attention toward self-service junkyard operations, and it just signed to acquire one of the big ones.
If you’ve purchased used car parts, you’re probably familiar with LKQ. The largest auto recycling operation in America, the firm buys more than 600,000 cars to part-out every year, and owns 63 self-service yards from coast-to-coast. That last part is about to be past-tense, because private equity just gobbled these yards up. As LKQ announced via an investor relations news release:
LKQ Corporation (Nasdaq: LKQ) (“LKQ” or the “Company”) today announced it has entered into a definitive agreement to sell its Self Service segment (“Pick Your Part”) to an affiliate of Pacific Avenue Capital Partners, LLC for an enterprise value of $410 million, subject to customary post-closing purchase price adjustments. This proposed transaction was the result of a robust competitive bid sale process that attracted interest from several parties.
Oof. Part of the appeal of having so many self-service junkyards owned by LKQ is that the people in the C-suite knew the market well. Reasonable prices, good selection of cars, you know the drill. However, LKQ President and CEO Justin Jude recently said, “While Pick Your Part has played a meaningful role in our history, we believe that it no longer aligns with our long-term strategy.” That doesn’t paint a great picture, and it offers up a reason to approach this transfer of Pick-Your-Part ownership with caution.
See, private equity has a particular way of doing things. Buying up underperforming entities, merging them to increase market cap, and if that doesn’t work, saddling them with debt, and then stripping them for parts. We’ve seen this process happen when Hoonigan was acquired by a private equity firm, bundled with WheelPros, and sent through Chapter 11.
This playbook has been run so often that it is worth having some genuine trepidation for how this sale of junkyard facilities could go. How it could affect your experience hunting for used parts, and what sort of change is going to happen. With acquisitions like this, the everyday customer experience rarely remains the same.
While Pacific Avenue Capital Partners does have auto parts experience, notably through the ownership of Fram parent company Purflux Group, there is a notable difference between the manufacture and distribution of new car parts at scale and the harvesting of old car parts. One’s straightforward for anyone familiar with manufacturing, while the other is fundamentally a recycling business.
For now, plenty is still unknown about the effects and potential outcomes of selling a huge chain of self-service junkyards to a private equity firm. However, don’t be surprised if changes are afoot for your local junkyard. It’s possible that this lifeline could extend the existence of these Pick-Your-Part yards, but it’s also possible that private equity will private equity if they don’t find themselves in a profitable position for a clean exit.
Top graphic image: LKQ Pick Your Part
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