Private equity firms may be looking to Advance Auto Parts for the next big leveraged buyout - at least, by the standards of the post-financial-crisis era.
Advance Auto has hired the Blackstone Group‘s deal advisory arm to help it consider a potential sale, a person briefed on the matter said on Thursday.
News of the sale deliberations, which was first reported by CNBC, propelled the auto parts retailer's shares up 14 percent on Thursday, to $81. That is the highest that Advance Auto has traded since May, when the company said that it expected comparable store sales for the year to hit the low end of its guidance range.
Thursday's closing price valued Advanced Auto at nearly $6 billion, making any potential buyout cost more than $7 billion. That would make the company potentially too big to swallow for any one of the private equity firms that is considering buying the company, forcing them to team up.
Buyout firms have been largely constrained by m ore stringent lending by banks. While leveraged buyout prices have slowly been rising since the fall of 2008, they remain well below the peaks set by the takeovers of TXU and HCA. The largest on record thus far include the $7.2 billion acquisition of the Samson Investment Company by a group led by Kohlberg Kravis Roberts and the takeover of the El Paso Corporation's exploration and production assets by a consortium headed by Apollo Global Management.
Advance Auto may be a decent candidate to become another major private equity target. It carried only about $600 million in long-term debt as of July 14. And the company generates relatively stable cash flow from its operations, reporting $770.7 million for the year ended in July, allowing it to service the amount of leverage that be needed for a leveraged buyout.
Founded in 1929 and based in Roanoke, Va., the company runs 3,460 stores, mostly east of the Rocky Mountains.
