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The Aftermarket Analyst, January 2017

A look back at some significant deals of 2016

The three trends Capstone Financial Group has identified as key to the auto aftermarket industry in the next year and beyond are:

  • disintermediation,
  • food chain acquisitions, and
  • Detroit moving to Silicon Valley.

We wrote about Silicon Valley in the last newsletter. To explain the other two trends, it helps to look back and review some key 2016 deals; specifically deals in the Jeep/4×4/Truck Accessory category.

Key 2016 Jeep/4×4/Truck Accessories dealsKey Deals JPG

Nearly all of the above are examples of companies that not only have dealer networks, but sell their products online directly to the consumer. And importantly, all of the companies have similar multi-pronged sales strategies.

This doesn’t necessarily portend the end of dealer networks or installers—although they have their own challenges to consider—it just means that manufacturers are taking advantage of the technology that wasn’t available to them 15 or 10 or 5 years ago. Online sales and marketing allows companies to expand their reach exponentially, and an educated consumer is a boon to the manufacturer and the dealer and installer network. Adapt or die. The companies listed in the table are all adapting.

A Prime Example

Bestop is a prime example of a company standing out in a thriving sector and growing organically and through acquisition.

The company was founded in 1954 making canvas replacement tops. There were seven employees. Today it has over 500 employees worldwide and is the sole supplier of factory soft tops for Jeep Wranglers. Its products, which are sold through OE and aftermarket channels, include tops, doors and windows, floor mats and cargo liners, power boards, tonneau covers and bed covers, and bumpers and grill guards. Kinderhook Industries took control in August 2015 after acquiring the company in a joint venture with Magna International. In 2016, Bestop opened a 10,000 square foot engineering and R&D facility and acquired Baja Designs, Morris Motor Company and Tuffy Security Products.

Baja Designs and Tuffy Security Products

Baja Designs is an expert in motorcycle and off-road lighting with 20+ years of experience. It was the first company to make a forward projecting LED light bar and their lights have been used by a majority of vehicles in the Baja 1000. Their tagline is “the scientists of lighting.”

Tuffy Security Products makes secure storage products for Jeeps, trucks, SUV’s and commercial vehicles. Their security lock boxes are fabricated using heavy duty 16 gauge steel. They have products for everybody from sportsmen to law enforcement to the military.

While their products couldn’t be more different, Baja and Tuffy share some key characteristics:

  • both offer premium products and are leaders in their respective fields,
  • both complement Bestop’s existing products and provide access to new markets,
  • both have strong engineering departments which makes collaboration between companies so much easier, and
  • both companies sell their products through a dealer network and directly to consumers.

These deals represent a new take on disintermediation where manufacturers sell directly to the consumer while maintaining a dealer/installer network. Some products are a piece of cake to install and some aren’t. Some consumers enjoy installing their own accessories and some don’t. Providing consumers with multiple ways to buy your products is a win-win situation for all parties.

Morris Motor Company

Bestop’s acquisition of Morris Motor Company is the type of vertical food-chain deal that Capstone began talking about ten years ago. Morris operates in the red-hot Jeep accessories market and pioneered the consumer-direct Jeep Internet business.

Over the last 25 years, Morris went from a one bay garage to a 60,000 square foot warehouse where they sell over 46,000 SKUs from over 250 manufacturers, including Bestop, Baja and Tuffy. They also provide expert technical advice to Jeep enthusiasts all over the world. Put another way: Morris gives consumers clarity in a wildly diverse market.

Wrap Up

As 2016 wound down, news came across the wire that provided another prime example of what was described above. Michelin announced it was going to sell tires online to consumers in the Southeast, with plans to roll out the service to the rest of the country by mid-2017. Earlier in the year, the company began selling its BFGoodrich tires online. In both cases, the consumer purchases the tires online and makes an appointment with a retailer to get them installed. Scott Clark, chief operating officer of Michelin North America said “We have worked very closely with our retail partners to ensure we have an offer that promotes their business while also offering consumers the convenience of researching and buying online.”


Recently Announced Automotive Aftermarket Transactions

Transactions-pdf-friday2


Selected Public Company Capitalization and Operating FiguresPublic_Comps_1-9-17-Web-Version