[European Atlas] The time for integration-consolidation has come for LKQ Europe

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Seven years of an acquisition campaign to become the leader in the European market and generate 40% of the €10.7 billion business forecast worldwide for 2018 for the American
parent company, a turnover multiplied by ten in ten years but a 7% decrease compared to 2017. The buying frenzy of LKQ Europe has now calmed after starting in 2011 with the acquisition of ECP in Great Britain, Sator (2013) covering Benelux and France, Rhiag in Italy and Eastern Europe (2016) and last year the takeover of the German Stahlgruber at a purchase price equal to its turnover of €1.5 billion and finalized in May 2018. No spectacular take-overs in the first nine months of this year, but seven acquisitions aimed at strengthening the positions of its existing subsidiaries. These include the acquisition by Mekonomen – of which LKQ has held 26.5% of the capital since 2016 – FTZ in Denmark and Inter Team in Poland, until now in the Hella distribution group; or the specialist paint company Vanesch Verf Groep (Netherlands and Belgium) by Sator. Added to these are 29 new sales points including 26 in the East! This is just a short break because LKQ has clearly expressed its desire to continue its conquest of new countries in Europe. "We want to go further! Market share is fundamental for LKQ Europe, which wants to strengthen in the east of the continent" said Ferdinando Imhof, Purchasing Director LKQ Europe at the Italian Parts Conference. Some observers also note that its number one position does mean it can ignore France, the third European market, even though GPC is well established with Alliance Automotive Group. Further potential large acquisitions enabling it to become leader are limited to one company - PHE.

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Optimize practicesWhile waiting to make some other big moves, LKQ has set itself a new priority, to consolidate its acquisitions pooling the best practices of each subsidiary and each country to transform a collection of disparate companies into a big and beautiful single structure big enough to have an effect on the market and develop a strong alternative after-sales offer to challenge the manufacturers. "We want to be the first choice for our customers. We cover 22 countries, which is an obvious advantage over our competitors. But being big is not enough, we must now rationalize to reduce costs and increase margins." The Purchasing Director insists "While our European expansion strategy has enabled us to gain new markets by buying very large players, growth must also be organic." And for good reason, because on the nine-month balance sheet (at the time of publication Zepros did not have access to the annual balance sheet) it appears that European growth came from acquisitions (52.6%), while organic growth shows a small 2% (versus 5.2% in the USA). The company has therefore worked on possible synergies. Firstly, in purchasing and logistics, with Fource, Rhiag but also Stahlgruber being called upon to serve as "an additional strategic hub for continuous improvement of supply, logistics and infrastructure optimization" said John Quinn, CEO of LKQ Europe when finalizing the buyout.

Big work on the dataSynergies in services to garages are also underway. "We are working on developing the content of each programme for garages." On the other hand, there is no plan to standardize garage networks, because the LKQ Europe teams have in mind that, even if Europe is a market in its own right, it is essential to respect the cultural differences of each country. Fleet management, from the smallest to the largest, online business drawing on the experience of ECP and its powerful site in Great Britain (which has not yet succeeded in becoming a significant pan-European tool), call centres or technical support. Teams are working on all fronts to create their own system to meet the needs of the market but also technological challenges. "We are investing in R&D to work on data, its reprocessing and the information it delivers." A team has been set up in Great Britain to develop "the best electronic catalogue in Europe that should become the master reference with a data platform for maintenance". Similarly, six LKQ employees are working with UK universities to develop a solution for vehicle data processing. "Globalization helps lower costs. Diversification helps to support growth, to reduce the risks inherent in the weaknesses in some businesses by relying on other more resilient ones at a given moment." The European team must present solid financial parameters. Because if the obvious dynamism of the European performance of LKQ is clear, things are different when looking at profit levels. The nine-month Ebitda is struggling to pass 8% in Europe versus nearly 13% in the US. In fact, our European markets are expensive to develop, and LKQ emphasizes the importance of leveraging synergies "and the ability to integrate and manage the risks of companies acquired". In this context, European integration is a necessity for LKQ in its search for growth and margins on our continent. “There is still a lot to do in Europe. The road ahead is still long, but it is clear to us.”Caroline Ridet