Over the past few decades, private equity has come for just about everything under the sun. It’s bankrupted Red Lobster, gobbled up automotive media brands, and led to merger after merger in all sorts of industries. Obviously, it was only a matter of time before private equity turned its attention toward self-service junkyard operations, and it just signed to acquire one of the big ones.
If you’ve purchased used car parts, you’re probably familiar with LKQ. The largest auto recycling operation in America, the firm buys more than 600,000 cars to part-out every year, and owns 63 self-service yards from coast-to-coast. That last part is about to be past-tense, because private equity just gobbled these yards up. As LKQ announced via an investor relations news release:
LKQ Corporation (Nasdaq: LKQ) (“LKQ” or the “Company”) today announced it has entered into a definitive agreement to sell its Self Service segment (“Pick Your Part”) to an affiliate of Pacific Avenue Capital Partners, LLC for an enterprise value of $410 million, subject to customary post-closing purchase price adjustments. This proposed transaction was the result of a robust competitive bid sale process that attracted interest from several parties.
Oof. Part of the appeal of having so many self-service junkyards owned by LKQ is that the people in the C-suite knew the market well. Reasonable prices, good selection of cars, you know the drill. However, LKQ President and CEO Justin Jude recently said, “While Pick Your Part has played a meaningful role in our history, we believe that it no longer aligns with our long-term strategy.” That doesn’t paint a great picture, and it offers up a reason to approach this transfer of Pick-Your-Part ownership with caution.
See, private equity has a particular way of doing things. Buying up underperforming entities, merging them to increase market cap, and if that doesn’t work, saddling them with debt, and then stripping them for parts. We’ve seen this process happen when Hoonigan was acquired by a private equity firm, bundled with WheelPros, and sent through Chapter 11.
This playbook has been run so often that it is worth having some genuine trepidation for how this sale of junkyard facilities could go. How it could affect your experience hunting for used parts, and what sort of change is going to happen. With acquisitions like this, the everyday customer experience rarely remains the same.
While Pacific Avenue Capital Partners does have auto parts experience, notably through the ownership of Fram parent company Purflux Group, there is a notable difference between the manufacture and distribution of new car parts at scale and the harvesting of old car parts. One’s straightforward for anyone familiar with manufacturing, while the other is fundamentally a recycling business.
For now, plenty is still unknown about the effects and potential outcomes of selling a huge chain of self-service junkyards to a private equity firm. However, don’t be surprised if changes are afoot for your local junkyard. It’s possible that this lifeline could extend the existence of these Pick-Your-Part yards, but it’s also possible that private equity will private equity if they don’t find themselves in a profitable position for a clean exit.
Top graphic image: LKQ Pick Your Part
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At least we still have Pick n’ Pull, for now…
Damn, this sucks…hope they don’t fuck it all up…not holding my breath
“notably through the ownership of Fram parent company Purflux Group,”
Well that’s a red flag right there… since Fram used to be good a long time ago… but is shit these days.
https://bobistheoilguy.com/forums/threads/fram-filters-for-the-most-part-no-longer-good.395455/
My dad used to swear by Fram filters back in the 80’s. I haven’t seen him buy one in ages now.
I’ve been buying the premium Napa filters, made by a major industrial specialist.
This is what actually killed Toys R Us, among other companies. Not good.
Business plan:
Acquire company.
Spin off a separate entity to hold all the inventory.
Ship said inventory to one or more developing countries for cheap disassembly ‘re-manufacturing’.
Sell used parts online to repair businesses and consumers.
Entity remaining with the real estate declares bankruptcy, leaving the public the cost and liability of clean up.
Buy back the remediated land at public auction.
Develop as enterprise of rental storage lockers.
Donate to Trump’s reelection campaign.
Buy back the remediated land at public auction.
Develop as enterprise of rental storage lockers.
Donate to Trump’s reelection campaign.
You forgot:
When convicted for tax fraud, get pardon
They have gone rapidly downhill since Covid. Prices are way up, so much so that between the labor to pull stuff and the price, I’ve gone back to searching through car-part.com before I head to the LKQ.
100% agree. Prices at LKQ pick a part is out of control. It is genuinely cheaper to go to a full service yard. But sometimes LKQ will get an old, hard to find car and you’re stuck rolling around in the filth and paying exorbitant prices
Indeed this has been happening for some time. It’s almost as old as Danny Devito.
Also, OPM.
Enshittification is coming for every aspect of our lives.
I blame
predatory capitalismprivate equity. Those who already have money can find and afford ways to seize even more. Those of us who don’t have much to begin with are running out of ways to stretch what little we have, and thus can’t afford ways to save what we can retain. You want music? Subscription. Can’t afford a house? Rent. Injured or sick? Death – that’s what’s most affordable for lots of Americans anymore. It’s called health care because if you’re unhealthy you’re screwed.Want to fix your car? Pull a part – except no, now even that is sucked up by private equity, “service fees” added to a process that used to be a simple matter of wandering around with tools and a wheelbarrow, and whatever service you needed you pretty much schlepped in under your own steam.
Luigi might be wrong, but he wasn’t entirely wrong.
I don’t believe he was wrong, I believe he’s a saint and an American Hero. What other options do we really have? “We’re the majority. Don’t fuck with us.” should be a motto we rally behind. They’ve done their utmost to divide us over immigrants and trans people so we don’t come together against them, because they know they will lose.
I don’t think he was wrong, not morally. But because the laws currently protect everyone equally, even those who codify and streamline a process that automatically cuts short others’ lives by the wholesale hundreds, what Luigi did was wrong from a legal standpoint.
Maybe if the laws worked harder to protect those who are getting murdered in slow motion by bulk rate profit prioritization, we wouldn’t need Luigi.
All of this is shitty except for music subscriptions. That actually saves me a fortune because I used to buy 2-3 CDs a month at a minimum. $15 for YouTube Premium (no ads! yay!) which includes YouTube Music is a net savings for me. Other than that, you’re not wrong.
Okay, it saves you money today. And maybe even money tomorrow, next month, next year.
When you don’t want to pay for YouTube Music anymore, where is your music then?
I got burned when Google Play Music was folded into YouTube Music. If I want to hear my music, I have to have my phone open and lit up, or else pay extra to hear music with the phone closed for music I already paid for. To be clear, I can still listen to music I paid for, but to have the same level of functionality I had with Google Play Music, I have to pay for YouTube Premium, whereas with GPM it just worked. At least with physical CDs I can rip those, dump them into my phone and play them back via whatever codec I want – VLC being my overachiever of choice. I think VLC could play a chicken sandwich if I could figure out how to get it into the phone.
Fair enough, I went through a similar experience with Google Podcasts.
Luigi wasn’t wrong.
I can’t believe how expensive pull it yourself junkyards have become now. Anymore, I find I would rather buy a parts car for a few hundred bucks, pull what I want, and resell the rest, or the parts. Or buy the parts from a part out on Marketplace. Either way I tend to spend less money overall, and have a better experience.
Its hard to imagine a way for a private equity firm to make that industry better.
One of my favorite yards went to pulling parts themselves, and didn’t allow wandering and looking.
They still let me look around as they knew me and I often pulled bits from random brands.
After the original family member retired, that ended.
They stock shelves, but charge higher prices.
They’re still in business though.
One in town following that model now, I’ve never bought anything from them since they changed.
Wildly high prices.
No idea who they sell to.
Probably sell on ebay. Search for any body part or trim piece from a recent car, and there are plenty of listings.
There are none near me that allow you to walk around anymore. It sucks.
This is where I think this segment of the industry is headed. Either you’re buying from a full servce yard (either online or locally) or from somebody’s backyard. The self-serve model is dying.
They’re still a LOT cheaper than the parts store chains, but it’s like they forgot the internet exists.
I got an incredibly good quality, pre-primered aftermarket bumper for my Mazda 3 for $89. That was actually cheaper than the cost of buying a used one at my local yard, which would’ve been $90.25 for just the bumper. Throw in the trim, emblem, fog light blanks, lower lip, and both grilles? I’d have been at $300 at the salvage yard, and still needed to hit the bumper with sandpaper, filler, primer, and paint!
I spent less than $300 grand total, including paint and clearcoat (even with having to go OEM for the emblem and tow hook cover) without having to do any bodywork by shopping online, and all of the important parts were even CAPA certified.
Well I’d hope you spent less than $300 grand…
Smartass.
Wonder if this is partly a real estate play. Lots of cheap land (yes it will all be contaminated but they would have accounted for that liability).
My father was pretty sure that was why Lampert bought up and screwed over Kmart, because they represented a lot of good locations that had had suburbs grow up around them and become far more valuable than they used to be. I used to think my father was a savvy analyst except all the former Kmart locations around me are now empty and idle – a complete waste, and have been since Kmart went toes-up. In fact they’re negative if anything, having once been attractive anchor locations that now, being empty, are dragging down the value of the entire center where they sit dark and useless.
Agree, PE retail purchases are usually real estate plays. 1st thing the acquired company does is sell the real estate to the PE firm and then lease the property back as part of “financial restructuring.” The PE firm keeps the acquired company alive just long enough for the lease payments to pay off the expenses the PE firm incurred acquiring the company and the real estate. Then the legacy company goes bankrupt and the PE firm gets the real estate (or Craftsman / Die Hard / Kenmore brands) for free. And hundreds of thousands of employees are out of work.
However, all the LKQ yards near me are borderline superfund sights. There’s some prime real estate (and some awful ones) for redevelopment, but I can’t imagine the cost / liability of remediation would be cost effective.
Hmm.. I’m thinking the administration that got rid of any green-house gasses regulation and is thinking of re-legalizing asbestos might look the other way, especially if a wealthy PE firm straight-up bribes them (they probably just have to book a full floor in a trump hotel for a month, or rent one of his golf courses).
We have an LKQ and a Pull-a-Part here in Charlotte, the LKQ is definitely a little more upscale, if that’s a thing, tell them what your looking for, they give you a print out of what cars in the lot that match with locations, but if you have a phone you can just look it up on the site so either way. But they are definitely not in a “good” area for development, heavy industrial all around so probably not the plan.
Well, they don’t have any PYP locations in New England (sad panda) so I guess I don’t much care. Still, probably the beginning of the end like every other PE acquisition. I don’t know why those are still a thing.
I got my best job ever by way of private equity buying a company and going on a hiring spree. Then they burned through all the money and sold us four years later, and we were all put out of a job.
Whenever I get mad about them ruining that wonderful company, I tell myself that I only ever had that job because of their wild fiscal irresponsibility, and get a bit conflicted. But not really… private equity sucks.
That’s the perception, and that’s the reality for some people (particularly the author), but it’s by no means universal. The worst buy-and-strip offender I’ve worked for in my life was a publicly traded, Canadian-headquartered software company (on those three descriptors alone, it’s probably not hard to guess what it is); the two best entities (was acquired by each, at two different software companies) I’ve worked for were in fact PE entities, who sought to develop what they’d purchased and weren’t beholden to quarterly financials in the same way publicly traded companies are. They, in other words, had the runway to get us to grow without cutting people.
Pacific Capital has lots of industry and manufacturing stuff in its portfolio; you can see it here: https://pacificavenuecapital.com/portfolio/?
While there are PE (or publicly traded, for that matter) entities that will turn their acquisitions into an arguably worse experience for everyone, I don’t see any evidence that that’s what’s going to happen here.
That’s a good perspective, though I’ll say it seems like there’s about 80% of ’em that make the rest look bad.
Considering that the businesses that they buy then have to pay back their purchase price, their expenses go way up, so they cut wherever they can (AKA “find efficiencies”). The prices go up significantly, the experienced, well-paid staff get let go, and low-wage workers that know very little replace them. The business itself suffers, the employees suffer, and the customers suffer.
Private equity is there only to extract as many millions as they possibly can and then leave the smoking mess for the bankruptcy courts and unemployment offices to sort out.
On the other hand, any independent wrecking yards in the area that treat their customers well should be OK.
Again, two faults with this. One, many publicly traded companies do this, so it’s not as though PE entities are special in this regard. Two, many – if not most – PE companies don’t do this. Carlyle, Thoma Bravo, I could name others – their model is specifically growth-oriented as opposed to.
To write what you wrote and what I quoted above is indicative of a complete void of knowledge about what PE actually does. If you’re getting your info from social media and the occasional talking head, I can see how you might end up writing something like that. On the other hand, lots of PE entities are simply structures that are preferred to accelerate growth and competency because they aren’t beholden to the quarterly-reporting structure of publicly traded entities.
Nope, not talking heads or social media. My take on this comes from life experience and lots of reading. I don’t doubt that some private equity firms are not malevolent. There are many, many millions to be made by playing dirty, and I have seen it over and over, in companies where I have worked, in my community and around the nation.
“Many, if not most” means “some, possibly even more than half”. That is not exactly a ringing endorsement.
Hopefully LKQ and its customers will benefit from a benevolent takeover, and if it comes to that, I will buy you lunch.
I started “casual” junkyarding around 2010 post-recession to keep my paid-for & recession bought Mazda Protege looking sharp and running well. At the time the local-ish yard I was going to had really great holiday weekend sales and promotions. After LKQ took them over, prices went up, admission charge went up, and they always charged a mandatory “warranty” unless you specifically told them not to. I would guess that some of these yards are probably more valuable for their real estate, so the PE firms will flip them to a developer who can do site remediation then boom, townhouses.
Maybe … just broadly junkyards are in pretty undesirable locales … I know that can change and will change in many cases over the longer term! Depending on size and location though there could be a few in there that have a lot of value in them along those lines!!
This is not just for people scavenging junk yards because LKQ is a major company serving body shops. This could fuck car insurance rates even more than they are, with the only hope being that car insurance companies are big enough to push back.
PE has so much money because of loose monetary policy and the $800 billion scam called PPP that it ran out of good investments a long time ago and now will often make knowingly bad investments out of pressure to use the funds it is receiving.
LKQ only sold the self-serve division off. They kept the traditional full-service yards most bodyshops frequent.
Oh god that’s desperate to buy only the worst part of the business. I have to think this is a real estate play and they are thinking they can finesse the environmental liabilities, sell the scrap metal, and flip it to developers.
“Stick to Parts”
Anyone in the metal scrap business in here to do the quick math on scrap value of 63 junk yards? Greater than half a billion? Down a rabbit hole I go…..
Ok, looked at 3 relatively close to me in Austin and Houston. Quick google maps satellite view shows somewhere in the neighborhood of 1200 to 1750 with an average of 1500 cars each in a surprisingly small footprint. Average scrap price can land anywhere from $150 to $500 per….let’s say $300 per. That’s…..$28M worth of scrap if they just straight liquidated.
Ok, immediate theory does not hold water. Thought perhaps if they liquidated and sold the land assets they could quickly net a profit worth the capital. But even though the ones I looked at would probably carry some hefty real estate value for the land (all 3 were in the metro area and would likely carry significant value) there is no way that would get them up over $500M, and that is without considering what the debt load is on the acquisition.
So….I guess the PE actually sees uncaptured value in junk yards? Ok then.
Why did I go down this rabbit hole again?
Thanks for that! Saved me a half-hour!
Thanks for scratching this brain itch for me. Now I don’t have to.
I would think the land would be close to worthless due to brownfield concerns as well.
Fluids are drained, batteries pulled, and LKQ keeps pretty damn tidy locations for a pick yard, so may not be as much of a concern…and nothing is worthless in urban metro areas with no available land.
They pull the batteries because they sell good ones up front and recycle bad ones. They haven’t drained any fluids in car recently, I’ve gotten a surprise drenching several times while pulling parts – including AC systems.
First you will only be able to enter the yard by using an app. (your telephone,email address and payment method on the app will later be sold.)
Staff who go on holiday or take sick days will lose jobs.
When customer numbers fall, yards will be shut, and every car, sold to a recycled steel foundry by weight.
Then a shiny new housing development will sprout and everyone will be happy.
LKQ jacked up the prices a couple years ago where for most small things it doesn’t make sense to buy used. I witnessed multiple people, including myself, getting to the checkout and then just abandoning parts at the cashier desk and walking out empty handed. The only downside is other yards might raise their prices if LKQ disappears.
I did that the last time I went. I needed a front spindle, but I grabbed some misc tiny interior trim pieces. Like a sunvisor clip. They wanted something ridiculous for each one, like $10. I left them there at the counter.
Yep. The handful of stuff that they used to just say, “eh, don’t worry about it, no charge” was what made it much more worthwhile to go to those places.
Well that right there is a shit sandwich.
“ and if that doesn’t work, saddling them with debt, and then stripping them for parts”
True, but this article is written from a certain ‘edgy’ perspective, but while trashing PE is good for clicks, the reporting here doesn’t reflect reality.
PE-acquired firms have much larger bankruptcy risk (~2x), but the upside is that the 80% of PE-acquired firms tend to not employ the strategies seen at Toys-R-Us etc. and tend to perform more strongly than non-PE firms.
The PE = bad position is valid but this post is weak in its assertions
“…tend to perform more strongly…” is the question – for sure these folks are savvy businesspeople – but more and more I’m understanding that means, “more willing to do what some of us don’t think is the right thing to do” – so they are effective at getting more money from businesses, and (using your numbers) 80% of the time it doesn’t kill the business and they find “real value” – meaning, applied here, that there are enough people who will (one way or another) spend more money from the pick a part – Now, does that mean expanding ways to sell and getting more parts out of the lot and into people’s hands (great!), or does it mean finding prices that can be further edged up (less great for us little people), or … ? Probably all of the above.
All the local LKQ PYPs here are run by assholes. I have never had a good experience at any of them (there are three), so while I don’t relish the idea of losing even more local spots to find used parts, I won’t miss any of the staff if they all end up in the breadline.
Ever notice how in certain settings some employees treat everyone they don’t know like they are one of the world’s biggest idiots? I find this common in the automotive and trade worlds. I consider it counterproductive, but it seems almost universal.
My local one is very nice to me, they still look out for me, if you catch my drift. However, if you come in with a bad attitude they will reciprocate. I have been to a few other, more high volume ones in my state for specific parts, and they tend to be more business like, and more likely to charge you for everything they can.