Question: The auto parts business has three large publicly held firms
The auto parts business has three large publicly held firms: O’Reilly Automotive Inc. (Orly), Advance Auto Parts Inc. (AAP), and Auto Zone Inc. (AZO). In addition to these publicly held firms, Carquest is the largest privately held firm in the industry. Assume that in summer 2010, your investment banking firm is considering whether to approach the top management of O’Reilly with a proposal that they consider acquiring Carquest, which owns over 4,000 auto parts outlets in the United States. As a preliminary step in the evaluation of the possible acquisition, you have assembled a team of analysts to prepare a preliminary analysis of acquisition price multiples that might be warranted based on current market conditions. The analyst team went to work immediately and compiled the following set of financial information and potential valuation ratios:
a. How would you use this information to evaluate a potential offer to acquire Carquest’s equity? b. What do you think is driving the rather dramatic differences in the valuation ratios of the three firms?
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