A private equity group (Gores Group) is paying a 24% premium for Pep Boys , which comes up to a near-billion dollar price tag. You might ask: why?
Because the Gores Group is brilliant. They see that the aftermarket parts distribution market is evolving to the point where the chains will be the only significant players left. When Gores looks at Pep Boys they see Rocky before the big fight with Apollo Creed (played by AutoZone). Our post-recessionary aftermarket is one where cheap parts sell. To win in this market you need three things: (1) lots of distribution (Pep Boys has it), (2) DIY products and services (Pep Boys has them), and (3) huge volumes of product to buy (Pep Boys has this, too.)
OK, you need a bunch of other things that can be brought in the door:
- Capable purchasing organization to buy right, on a global basis (my guess is that Gores sees this as an opportunity)
- Brilliant store planographing, stocking, and merchandising – AutoZone is the best here and can be emulated
- Very capable Internet distribution strategy with mobile applications – B2B2C handles both DIY and DIFM segments
- Brilliant supply chain management – again, this can be brought in
- Brilliant digital marketing and social media strategy
Bottom line: So, what’s going to happen? Rocky will do fair battle with Apollo – Pep Boys is about to get healthy again. Based on recent focus groups with IRFs, jobbers, and WDs, my money is on Gores Group.