It's not enough that LKQ Corp. outruns the competition in the
U.S. and Britain.
Now the Chicago-based alternative car-parts distributor is
beating a path to continental Europe.
LKQ 's (
) British invasion in October 2011 was finessed through the $347
million acquisition of Euro Car Parts, the leading aftermarket
parts distributor in the U.K.
In LKQ's recent march to the Continent, it picked off
Netherlands-based Sator Beheer, tops in its home country as well
as Belgium, Luxembourg and Northern France. The $272 million buy
closed May 1.
Sator's parts are used by more than 6,000 customers, served
from 11 distribution centers.
"It's clearly a strategically significant acquisition," said
LKQ spokesperson Joseph Boutross. "It increases our European
footprint and puts us on the continent."
At the end of the second quarter, Europe accounted for 27% of
the company's parts and services revenue, up from zero before its
foray into Britain less than two years ago.
Sator almost surely won't be LKQ's last buy in Europe.
"Acquisitions are core to our story," Boutross said. "The
pipeline is robust. We have tremendous amount of runway in North
America and Europe."
LKQ, which stands for "Like Kind Quality," has expanded its
footprint in North America for years. In 2012, it acquired a
record 30 outfits.
New Parts For Business
LKQ's biggest buy at $810 million remains 2007's Keystone
Automotive Industries, which nearly doubled its revenue and added
more than 160 distribution warehouses .
"They know how to make an acquisition and integrate it
effectively and speedily," said Elliott Schlang, managing
director of Great Lakes Review, an institutional research
Great Lakes Review likes to focus on "best of class" midsize
companies in the Midwest. LKQ is one.
"They're 20 times the size of their nearest competitors. That
alone gets our attention," Schlang said.
The market for alternative car parts in the U.S. is highly
fragmented, with lots of mom-and-pop operators. Schlang says LKQ
has 25% to 30% share of that market.
In North America, LKQ is largely involved in collision repair
parts such as headlights, fenders and doors, followed by
mechanical components such as recycled engines, transmissions and
That puts it in a different market than do-it-yourself auto
retailers such asAutoZone (
) andO'Reilly Automotive (
), Schlang says.
Insurance companies typically pay for collision repairs and
encourage repair shops to use some alternative parts to save
money since they're 20% to 50% cheaper than original parts.
And since LKQ is the largest distributor, it often gets the
"It basically has an unmatched distribution network that
reaches most major markets in the U.S. and Canada within the next
day," Schlang said. "Their network of warehouses around the
country and their ability to deliver with their own fleet of
trucks gives them a leg up over everybody else."
LKQ has more than 3,500 trucks in North America to move parts
from warehouses to repair shops.
Its close ties with insurance companies and repair shops spur
"In North America, LKQ is building partnerships that make it
easier for repair shops to source parts," said analyst Craig
Kennison of Robert W. Baird, in an e-mail.
Inventory Goes Online
LKQ recently forged a new partnership with CCC Information
Services, for example, which provides software connecting repair
shops and insurance companies for looking up the cost of
After checking the CCC One database, repair shops would phone
LKQ or other suppliers for parts. Now they can order online
straight from LKQ via the CCC One system.
Kennison expects LKQ inventory to be accessible to more than
4,000 repair shops through CCC One, resulting in higher
LKQ is trying to replicate its business model in Europe.
"In Europe, LKQ is building its distribution footprint and
partnership with the insurance industry to develop demand for
collision parts, which is driving robust growth," Kennison
Unlike the U.S., LKQ's European business is more skewed to
mechanical parts than parts for collision repairs. But that's
changing as LKQ adds more collision-focused components to its
"LKQ is positioned to be a leading distributor of alternative
parts in Europe as the market for less expensive parts takes
off," Kennison noted.
Because collision repairs are paid mostly by insurance
companies, LKQ's business hasn't been as susceptible to the ups
and downs of the consumer economy.
"They've had 12 years of consistent growth right through the
recession," Schlang said. "The consistency is unbelievable."
Earnings and revenue over the last four years have grown 23% a
year on average. In the second quarter, revenue jumped 24% to
$1.25 billion. Organic growth (excluding acquisitions) was up 13%
for parts and services, with Europe accelerating 37.8% and North
Earnings in the quarter rose 19% to 25 cents a share. LKQ
stock jumped nearly 12% after the Aug. 1 report that gave new
Management raised the outlook, expecting organic revenue
growth of 8.5% to 10.5% vs. 6.5% to 8.5% previously and EPS of
$1.03 to $1.10, up from its earlier view of $1 to $1.09. LKQ
earned 87 cents a share in 2012.
Besides Sator, it made six buys in the quarter of local or
regional parts distributors in the U.S. and Canada.
LKQ is the fourth-largest firm by market cap in IBD's
Retail/Wholesale-Auto Parts industry group, after AutoZone,
O'Reilly andGenuine Parts Co. (
)Advance Auto Parts (
) is a little smaller. Of those five biggest, LKQ stock is up the
most this year, 40%. The company also has the highest Composite
Rating in the group, 97 of a possible 99.