Is Unipart tilting the right way?

John Neil helped to found Unipart Automotive

John Neil led the buyout of Unipart

It’s only a few months since CAT last went to have a chat with John Neill, boss of Unipart Automotive.

At that time he had already been approached by a private equity firm that wanted to buy
a stake in the business. Neill didn’t let on.

The two companies started working together to see if they were a good fit, and nine months later came our recent visit to Cowley to learn that H2 Equity Partners was to take a 50.1 percent controlling stake in Unipart Automotive for an undisclosed sum.

H2 managing partners Patrick Kalverboer will take the reigns from Neill and run the new company as executive chairman. A new buying group called AP United has also been created in the hope of securing even greater purchasing power.

The move will mean ‘ambitious growth’, say both Neill and H2 managing partner Patrick Kalverboer.

They say it gives the company new scale, nearly doubling the number of parts it will offer to 160,000, as well as a route into Europe, a market Unipart has unsuccessfully tried to crack before. Express Factors will continue and there’s to be more investment in infrastructure.

But is it a good idea? Is selling a controlling stake in one of Britain’s aftermarket crown jewels to a Dutch private equity firm the right thing to do? Aren’t they just looking to make a fast buck? Does it matter?

Kalverboer says: “Anything you read in the papers about private equity often involves a focus on very short term financial trickery.

“We are not a private equity firm consisting of financial engineering type people. Our team members have a background either in management consulting or have managed companies with themselves as the CEO.

“We focus on businesses where we can add value with our hands-on involvement. Our approach, and it’s pretty clear if you check our credentials and our background, is one of long term involvement with the business that we invest in.

“We have a lot of experience in wholesale distribution businesses and we have specific experience in the automotive wholesale distribution business.

A SIMPLE PHILOSOPHY

“Our philosophy is very, very simple. Once you know an industry it is much easier to continue to grow that business in that industry. It is much lower risk than getting into something completely new, that you’ve never done before. “This is a sector we like, it’s an industry we like, and it’s a long term commitment for us.

“What we do is build better businesses and to do that takes time. On average it takes us five to seven years.”

Kalverboer was in charge of H2’s purchase of a controlling stake in another European automotive aftermarket parts distribution company called Sator Holdings, the market leader in Benelux and Northern France.

Unipart vans become a staple sight on UK roads

Unipart vans become a staple sight on UK roads

“I know this industry,” he says. “I’ve done this. It’s not something new to me. We are very committed. We want to create a market leader in the UK. Unipart lost its way a little bit, but we want to get it back on track.”

Does Neill agree that Unipart Automotive lost its way?

“I think undoubtedly. After Unipart bought Partco, the Unipart guys weren’t running the business, so it did lose its way. I think it’s found its way.”

Is this the first step of the group divesting itself of the business entirely, though? Has the automotive arm suffered as the Group became more interested in logistics, repairing satellite equipment and showing Her Majesty’s Revenue and Customs how to save a billion pounds?

“No, absolutely on the contrary. You can see at 49.9 percent that Unipart remains absolutely 100 percent committed to the success of this business and will continue to support it in any way that we possibly can.

“This is a complex, difficult, sophisticated industry, so if you can be world class at managing automotive supply chains you can actually go and manage other supply chains.

“The auto industry, the body of knowledge you need to be world class is actually highly relevant to all our other industries. It’s part of our heritage that we’re proud of.

“We’re scaling up outlets through the hub and cluster network and that’s working very well, but for systems scale I really did want a big partner, and a European one.”

The hub and cluster network has the enormous 1 million sqft warehouse in Cowley at its heart, and 18 regional distribution centres around the country. In the HQ area there are already deliveries being made two to three times a day to the ‘Cowley Nine’ and that is the goal for the whole UK.

Kalverboer says it’s a priority: “We’ll finalise the rollout of our hub and cluster which is very important. It’s nice to say I’ve got 160,000 parts, but where have you got them? Can you get them to the customer within the hour? That’s the key question.

“We will put more stock closer to the customer. We will put more stock in volume and more stock in the number of parts available.

“Then, in a central warehouse, we will make the full range available. The customer should see a better availability of parts, a wider range and actually get them.

“The impact of that rollout is very visible. We see better availability in those locations where we’ve already implemented it, where it’s been running for a couple of months.

What does the future hold for Unipart Automotive?

What does the future hold for Unipart Automotive?

Much of this increase in the number of parts availability will come from one of Sator’s subsidiary companies Nipparts, an importer of parts for Asian models. It sells into Benelux and France, but also Eastern and Southern Europe.

“It’s probably comparable to ADL here in the UK,” says Kalverboer. “We have a client base who buy those sort of products. We’re very interested to see if we can introduce the Unipart brand, specifically related to European cars, together with the Nipparts brand.

“We’ll introduce it through our existing network in Benelux and Northern France. We think the main opportunity lies with combining it with our Nipparts operation. It is on our agenda to introduce the Unipart brand in Europe.”

AN ENDURING BRAND

Kalverboer says the Unipart brand will endure: “It’s going to be around for a long time to come. We believe that the brand has an added value in the market, although we will review certain situations with certain instances were the brand is used where I would say everybody knows there’s a proprietary brand in the box.

“There’s a high likelihood that the proprietary supplier is supplying to Sator and as part of the rationalisation we will of course look at the reason for putting it into a red, white and blue box.”

Neill is happy, relieved perhaps, to have someone to brave the European waters with this time: “They’ve done all the work. They’ve got the catalogue, they’ve done the training, they’ve got those things. It’s the sensible thing to do.”

As far as the UK and Express Factors go Kalverboer says: “They are an integral part of our network. They help us service our major account customers and regional customers. If you look at our wholly-owned branches, 175, the total network is over 200, so it is unrivalled compared with anybody else.Now we have to bring the range to an unrivalled level as well.

WILL THE MARKET ACCEPT THE NEW UNIPART?

The support and help with scale does appear to make sense for United Automotive as long as the interest is long-term, but what does the market think?

Our poll on Catmag.co.uk is reasonably positive, with 54 percent of respondents saying it’s a good move, 35 percent saying they’re not sure and just 11 percent opposed.

The level of affection for the company is palpable, however. A group of ex-employees meet three or four times a year to talk about Unipart. They’re called Unipatriots

"Selling 50.1% is different. Very different."

"Selling 50.1% is different. Very different."

One of the group expressed concern for their former employer. “When I started the core of Unipart was its parts business. Now I know times have changed and the company is essentially logistics now, but I can’t see how anybody could sell 50.1  percent. It was pretty much Neill’s baby. He was there when it was born, he nurtured it, and he saw it grow into adolescence. I don’t see why they would sell their core business in the UK. ”

Another industry insider was more sanguine: “It had to happen. The automotive side of the business had been haemorrhaging for years and maybe new investment and a new team could help. The rest of the Unipart Group is doing so well – logistics, rail, and so on.”

Once upon a time the automotive arm was everything for Unipart; now it accounts for less than 20 percent of the turnover of the group at around £180 million. Since Unipart isn’t publically listed, however, it’s impossible to tell how much of a contribution the automotive business may have made to the group’s 2010 profits. These group profits stood at of £9.5 million on the back of overall turnover of £1 billion.

A DIFFERENT WAY OF THINKING

“You might be thinking why would you sell a controlling interest in a business that you’ve had for a long time and value highly,” says Neill.

“The big strategic reasons are outlet scale and systems scale. It’s going with the flow, nothing that’s going to make people say ‘that’s the wrong thing to do’ because it’s exactly the way we think the business should run.

“We’re very happy to partner up with the right people, so this is not something new for the company.”

The thing is, though, selling 50.1 percent of the company is different. Very different.

This post was written by:

- who has written 65 posts on CAT Magazine.


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