Investcorp bullish on aftermarket parts distribution in tight economy

With almost 72% of goods transported by trucks in the US, the truck industry presents a lucrative and resilient investment for private equity firms working along the supply chain sector.

Investcorp, an investor in the truck aftermarket distribution sector, believes the industry will hedge against pricey original manufacturer parts to give fleet operators an option to keep maintenance costs in check – especially under a tight macroeconomic environment, managing director Steve Miller told PE Hub.

The private equity firm’s portfolio company S&S Truck Parts merged with Midwest Truck & Auto Parts earlier in August. Miller said it is likely that many truck operators will tap the aftermarket for parts, which will bolster Investcorp’s investment.

With almost 72 percent of goods being transported by trucks in the US, the truck industry presents a lucrative and resilient investment for private equity firms working along the supply chain sector.

“Once a truck comes off warranty, you have a choice,” said Miller. “There is a pricing advantage and in economic times where people might be watching their money a little bit, they are more likely to go to the aftermarket,” where non-branded parts are available at lower prices than those from the original manufacturer.

Investcorp acquired S&S, the Chicago-based distributor of private and branded aftermarket truck parts, in March this year. The firm then scooped Midwest Truck & Auto Parts, merging another Chicago-based producer and distributor of aftermarket products for heavy, medium and light-duty vehicles.

Both companies have a large supply chain supported by many vendors and suppliers from all over the world. Miller said the complementary element of the deal works in favor of both the vendors and customers.

Steve Miller, Investcorp

“One of the reasons we made the original investment in S&S is that this space is very resilient in the macroeconomic recessionary environments,” he said, while describing aftermarket services as mission-critical. Investcorp will also focus on the execution of its outlined plans to ensure the firm navigates the macroeconomic environment carefully for the success of the deal, Miller said.

He said the combined inventory from both companies will increase the number of options as well as the distribution channels. “When you put the companies together, there is a really nice customer base and you can cross-sell different product categories,” he said.

But developing new products is also a big part of the business. “It’s the one of the growth levers that we are excited about for both companies. The capital that we are providing is to invest in more infrastructure around new product introductions.”

He said more time will be spent on researching customers’ preferences, figuring out the right way to engineer them and then finding the right partners to create and supply them.

Turning to growth, Miller said the focus will be on organic methods such as investing in new product development and gaining new customers, although there is room for M&A. “We will look for opportunistic acquisitions as well,” he said.

Investcorp has made several investments within the aftermarket sector and hopes to leverage that experience in this deal. The firm has invested in Arrowhead Engineered Products, FleetPride and American Tire Distributors, among others.

“We have some really good institutional knowledge from the executives and operators who have done this kind of thing before,” he said. Some former chief executives in the aftermarket business are now advising the firm, and Miller said “we are utilizing their knowledge, expertise and experience.”

The firm expects a five-year hold period.

Investcorp is headquartered in Manama, Bahrain.