Deal Deep Dive: HCI’s Driven Distribution Platform Plans to Expand Out from Central U.S.

After forming Driven Distribution in October and appointing Matt Johnson as its new CEO in November, the HCI Equity Partners-backed auto aftermarket platform is working on expansion. HCI’s previous investments in Chicago Park’s and Sound in the fall, and of Tri-State Enterprises in November of 2023, formed the foundation for the auto parts distributor. With Tri-State having a presence in the South Central region (Texas, Arkansas and Oklahoma), and Chicago Parts active in Illinois and Wisconsin, Driven Distribution plans to expand out even further geographically.

Scott Gibaratz, partner at HCI, says the firm partnered with executives knowledgeable in the auto aftermarket space, Rob Pesiri and Dave Prater, to source the Tri-State deal. HCI then invested in Tri-State by buying a majority stake in the business in 2023, with the existing management team retaining a large minority share. The Tri-State deal was privately sourced without financial advisors on either side. Dickinson Wright served as a legal advisor to HCI, while Mitchell, Williams, Selig, Gates & Woodyard served as legal counsel to Tri-State. The deal was financed with debt capital from M&T Bank, which can also work on debt financing for add-on acquisitions.

After acquiring Chicago Parts & Sound in October last year, HCI formed the Driven Distribution brand that acts as a holding company around the two businesses. Tri-State, Chicago Parts and other companies HCI acquires under Driven Distribution will operate under their own brands, but the holding company can provide back-office support, IT, HR and other elements, Gibaratz explains.

Tristan Taylor, president of Tri-State, continues to lead the company while reporting to Johnson. Taylor, who bought the business from its founding family in 2015, says Tri-State grew significantly between 2015 and 2023. “The business was growing at a fast rate, and we decided to look for a new source of growth capital. After reviewing several options, we determined that HCI Equity Partners would be the best fit for the company,” Taylor says. “We can get industry expertise from equity investors to assist with our growth initiatives, as opposed to just financial assistance from a traditional debt provider.”

Johnson, who is based in Chicago, came to Driven Distribution by first interviewing for an independent board seat at the company. “During that process, they got to know me really well and decided to have a CEO for the Driven Distribution brand,” he says. “I liked what I saw and the team that they were putting together, I already knew the executives at HCI and ended up moving into the CEO role.”

He is well tenured in the auto aftermarket space, having previously worked as a chief operating officer and executive VP at both Pep Boys and Parts Authority. He also served as president of Altrom Group, Interamerican Moter Corporation and Westborough Management Group. Most recently he was a CEO of EiKO Global, a manufacturer and distributor of LED lighting appliances and fixtures.

Branching Out

Given where Tri-State and Chicago Parts are located, HCI plans to expand elsewhere in the middle of the country from the South to the North, which would include Missouri, elsewhere in Illinois, other Midwestern states and more of the South Central footprint. Gibaratz sees a lot of opportunity in rolling up auto parts distributors. “It’s a large highly-fragmented market with the potential for consolidation,” he says.

Tri-State and Chicago Parts sell traditional auto hard parts, as well as accessories. Add-on acquisitions could include companies that do both or one or the other. The size of add-on targets could range widely, anywhere from a couple of million in revenue to $100 million, Gibaratz says. “Auto aftermarket is one of the more stable industries out there. It grows about 4% a year, but smaller players are struggling to remain competitive, while big players can benefit from scale,” he continues.

Auto aftermarket is one of the more stable industries out there. It grows about 4% a year, but smaller players are struggling to remain competitive, while big players can benefit from scale.

Scott Gibaratz

HCI Equity Partners

Taylor says he imagines branching out from the Tri-State foundation to other neighboring states like Kansas, Missouri and Louisiana, as well as growing its presence in Arkansas, Oklahoma and Texas.

Johnson agrees he wants to expand in adjacent states. “We want to accelerate organic growth, as well as acquire independent parts distributors to have deeper penetration in adjacent markets,” he says. Ideally add-ons would have two to three locations and be recognized brand names in their local markets, he explains. Multiples in for these smaller acquisitions could range from 4x to 6x EBITDA, Johnson says. According to ACG’s GF Data, the average multiple for automotive parts and accessories distributors is around 8x EBITDA among deals with $10 million to $250 million in total enterprise value.

“I’m excited to be back in the auto aftermarket space,” says Johnson. “We have a robust pipeline. Dave Prater, who’s heading up M&A, and I have a lot of contacts in our networks. We’re here, we’re serious and we’re looking for opportunities.”

Auto Aftermarket Average Multiples

Source: GF Data

Anastasia Donde is Middle Market Growth’s senior editor.

Middle Market Growth is produced by the Association for Corporate Growth. To learn more about the organization and how to become a member, visit www.acg.org.