LKQ to buy Italy's Rhiag to boost Europe auto spares business

By Ankit Ajmera and Freya Berry

(Reuters) - U.S.-based LKQ Corp (LKQ.O) said it would buy Italy's Rhiag-Inter Auto Parts Italia SpA, owned by private equity firm Apax Partners LLP, to expand in the European auto spares market.

The deal, valued at 1.04 billion euros (£770.3 billion) on an enterprise basis, will give LKQ access to Italy, Czech Republic, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Slovakia, Poland and Spain.

LKQ's shares, which have fallen about 3 percent this year, rose as much as 5.2 percent on Tuesday.

Deal activity in the aftermarket auto parts industry is picking up as the average age of vehicles increases in slow-growing economies, such as those in many European countries.

The deal will also help LKQ tap into Europe's highly fragmented 188 billion-euro "do-it-for-me" wholesale auto parts market, which is growing fast as cars become more complex.

In Europe, LKQ currently has operations in the UK and the Benelux countries. Europe accounted for more than a quarter of the company's revenue in 2014.

LKQ said it expected annual savings of about 10 million euros from the deal, which was expected to add 11 cents per share to its adjusted earnings in 2016 and 21 cents in 2017.

In LKQ's home market, Japanese tyre maker Bridgestone Corp and billionaire investor Carl Icahn are locked in a battle for auto parts retailer Pep Boys-Manny, Moe & Jack (PBY.N).

Advance Auto Parts Inc (AAP.N) is also exploring a sale after being approached by at least one possible suitor, financial website StreetInsider reported this month.

Rhiag had revenue of about 882 million euros in the year ended Sept. 30, nearly half of which came from Italy.

Reuters reported exclusively in July that Apax, which bought Rhiag in 2013 for an undisclosed amount, was exploring a listing or sale of the Italian company.

The sale will generate 540 million euros for euro-denominated Apax funds, more than thrice the amount the funds invested in the company, a source familiar with the matter told Reuters. A dollar-denominated Apax fund that also invested in Rhiag will get about 2.5 times its investment, the source said.

The sale is expected to be completed in the second quarter of 2016.

LKQ said it planned to finance the deal through its revolving credit facility.

The company's shares were up 4.9 percent at $28.68 in noon trading.

BofA Merrill Lynch was LKQ's financial adviser, while JP Morgan and UBS advised Apax and Rhiag.

(Reporting by Ankit Ajmera in Bengaluru and Freya Berry in London; Editing by Ted Kerr and Kirti Pandey)