In the ever-evolving automotive industry, the market for parts and accessories is constantly adapting to meet the changing demands of consumers. As we move further into 2023, it is crucial for businesses and investors to stay informed about the current outlook for mergers and acquisitions (M&A) in this sector. In this newsletter, we will explore the latest trends and growth opportunities in the parts and accessories industry, with a particular focus on categories gaining steam and the impact of changing vehicle sales dynamics.

Stabilizing Revenue and Growth

After a period of uncertainty and disruption caused by COVID-19, with significant dips in revenue followed by massive growth, it appears that companies within the Parts & Accessories sector are gradually stabilizing their revenues and experiencing smoother growth trends. This growth is expected to build upon the baseline established in 2019, indicating a return to normalcy in the industry.

Pivoting to Adjacent Categories

One notable challenge faced by private equity platform companies is the struggle to find new assets for acquisition. This scarcity of available targets has prompted many companies to consider a pivot towards adjacent categories that are rapidly gaining popularity. These emerging categories present exciting opportunities for growth and expansion in the Parts & Accessories market.

Overlanding and Power Sports:

Overlanding and power sports are rapidly growing categories that cater to adventure enthusiasts seeking modular systems for their vehicles. Truck rack systems designed for camping, off-roading, and everyday driving are becoming increasingly popular. Businesses operating in this space have a unique opportunity to tap into the expanding market of outdoor enthusiasts.

Drag and Drive Cars:

Blending performance and practicality, “drag and drive” cars are gaining traction among individuals who desire everyday vehicles that can also be taken to the track. This category bridges the gap between high-performance cars and daily drivers, appealing to a broad range of automotive enthusiasts. These high-performance vehicles cater to car buffs who seek both speed and practicality in their daily transportation.

Rock Crawlers/Off-roaders:

For off-road enthusiasts looking for the ultimate adventure, rock crawlers and off-roaders offer the thrill of conquering challenging terrains. As more individuals embrace outdoor exploration, the demand for specialized vehicles and accessories in this segment is on the rise.

Retro and Resto Mods:

Nostalgia plays a significant role in the automotive world, and the “retro and resto” modification category taps into this sentiment. Restoring and modifying classic vehicles with modern technology and features has become a popular trend, attracting a dedicated community of fans and collectors. Classic cars hold a timeless appeal, and the demand for retro and resto mods is on the rise.

Opportunities in a Slowing Vehicle Sales Market

The slowdown in new and used vehicle sales presents unique opportunities for aftermarket growth. As consumers hold onto their vehicles for longer periods, older vehicles require more maintenance, repairs, and customization. Owners also seek to upgrade and enhance their vehicles’ performance, appearance, and functionality. Business owners in this space must prioritize steady growth and margin improvement to make the most of these opportunities.

Prudent Growth Strategies

While these opportunities are promising, it is crucial for business owners to adopt sustainable growth strategies. Focusing on steady growth and margin improvement will ensure sustainable success in a competitive landscape. Additionally, as private equity-backed platforms venture into new categories, they must exercise careful analysis and due diligence to mitigate risks and make informed investment decisions.

The Parts & Accessories M&A Outlook is filled with promising prospects as the industry stabilizes and companies adapt to changing market dynamics. The emergence of exciting categories, coupled with the opportunities presented by the aftermarket sector, opens new doors for growth and expansion. Overlanding, power sports, drag and drive cars, rock crawlers, retro and resto mods, among others, are experiencing significant growth and present immense potential for businesses and investors. With a strategic approach and a keen eye for emerging trends, business owners and investors alike can position themselves for success in the evolving automotive market.

Giorgio Andonian is a Managing Director in FOCUS Investment Banking’s Auto Aftermarket Group. With a lifetime spent in is family’s automotive business, he now advises and assists privately held middle market auto aftermarket companies with mergers and acquisitions. Contact Giorgio at [email protected].

Giorgio Andonian, a FOCUS Managing Director, has over 15 years of operational experience alongside his sell-side and buy-side experience in the automotive and e-commerce industries.