Company: LKQ Corp. (LKQ)
Business: LKQ is engaged in the distribution of spare parts, components and systems for the repair and maintenance of vehicles as well as products and accessories for the special vehicle aftermarket. The company operates in four segments: Wholesale – North America, Europe, Specialty and Self-Service. The company offers bumper covers, body panels and lights, as well as paint and paint-related consumables for vehicle refinishing. automotive mechanical parts and accessories; salvage products, including mechanical parts and collision parts including engines; transfers; door assemblies; Sheet metal products such as trunk lids, fenders and hoods; and lights and bumper assemblies. The company also supplies scrap metal and other materials to metal recyclers. Precious metals contained in certain of our recycled parts, such as: B. Catalysts; and brake pads, discs and sensors, clutches, steering and suspension products, filters, and oil and automotive fluids and electrical products. It serves collision and mechanical repair shops, new and used car dealers, and retail customers. Founded in 1998, LKQ is headquartered in Antioch, Tennessee.
Market value: $7.66 billion ($30.15 per share)
Activist: Ananym Capital Management
Property: 0.39%
Average cost: n/a
Comment from activists: Ananym Capital Management is a New York-based activist investment firm founded on September 3, 2024 and led by Charlie Penner (former partner at JANA Partners and head of shareholder activism at Engine No. 1) and Alex Silver (former partner and investment committee member at P2 Capital Partners). Ananym looks for high quality but undervalued companies, regardless of industry. They would prefer to work amicably with their portfolio companies but are willing to engage in a proxy dispute as a last resort. According to their latest 13F filing, they manage $260 million across 10 positions.
What happens
On October 21, Ananym Capital asked LKQ to divest its European operations and refocus on its North American business.
Behind the scenes
LKQ is a leading distributor of aftermarket vehicle parts. The core North America segment (40% of sales and 55% of earnings before interest, taxes, depreciation and amortization) primarily supplies aftermarket collision parts such as mirrors and bumpers.
The Europe segment (47% of sales/38% of EBITDA) primarily supplies mechanical and suspension products, but also includes a variety of other replacement and maintenance products. Although the European business is slightly larger in terms of revenue, the North American business has significantly higher margins and a much larger market share compared to its competitors.
Finally, the specialty segment (13% of sales/7% of EBITDA) supplies spare parts to the RV market. Originally just a U.S. aftermarket parts company, the company began aggressively making acquisitions in Europe starting in 2011, shifting its focus from consolidating recycled parts to building and integrating a European presence.
Additionally, these two companies are not nearly as similar as they sound. In North America they mostly make aftermarket collision parts like mirrors and bumpers, while in Europe it's mostly mechanical suspensions and things under the hood.
LKQ is no stranger to shareholder activism. In September 2019, when the stock was trading at $27 per share, ValueAct Capital hired the company and secured a board seat for one of its partners. Through this campaign, ValueAct was able to usher in a new wave of operational discipline whereby LKQ moved away from focusing on European mergers and acquisitions and instead paused large acquisitions and shifted its focus to increasing the company's free cash flow and executing buybacks at an attractive discount.
The results of this campaign speak for themselves, as LKQ's stock price rose to over $60 during the ValueAct campaign, giving the company a return on investment of 86.39% compared to 16.15% Russell 2000. However, following ValueAct's exit, LKQ returned to its old ways and shifted its focus back to mergers and acquisitions. Subsequently, the stock had fallen more than 25% by February 2025, when two new activists entered the stock.
In an uninspired campaign and settlement, those activists quickly settled for two board seats for independent directors, and the stock has fallen 20% in the eight months since, while the Russell 2000 has risen more than 7% in the same period.
With the stock now only slightly higher than it was in 2019, when ValueAct got involved, a third activist has stepped in to pick up where ValueAct left off, calling on LKQ to divest its European operations and refocus on its North American business.
LKQ has always been a company that thrives on simplification and is hurt by complexity – and Ananym's plan seems consistent with that approach: (i) stop large mergers and acquisitions, (i) divest the European business and other non-core assets, and (iii) use the proceeds to fund buybacks and reinvest in organic growth in the core NA segment.
Operationally, Ananym's plan offers several advantages. While the US functions as a single market with uniform regulations, Europe is made up of a number of nation states, each with their own regulatory framework, making integration far more complex. This creates significant execution risks, such as the fact that the company still needs to integrate more than 20 ERP systems in 18 different countries.
Divesting Europe would not only give the company a higher-margin business with a much larger relative market share, but it would also allow management to devote all of its time and resources to North America. The alternative is to continue to spend a disproportionate amount of time integrating all European acquisitions across European countries from their headquarters in Chicago and Nashville.
From a valuation perspective, the opportunity here is clear. Industrial distribution peers typically trade at EBITDA multiples in the mid-teens or higher, while LKQ currently trades at 7.3 times forward EBITDA. This is a discount not only to the market, but also to its historical levels, as LKQ, even in its chaotic conglomerate form, still trades at a 10-year historical average of 10x EBITDA.
The European business could potentially be sold at an 8-9x multiple, but a sale even at the company's current multiple would have a positive impact on the appreciation of the North American business, which could be converted to its historical multiple of 10x EBITDA.
The proceeds from such a sale could allow LKQ to repurchase up to 40% of its outstanding shares, which, when combined with NA's revaluation, could easily result in an increase of more than 60% over the company's current share price.
While strategy models with similar models, such as O'Reilly, AutoZoneAnd Original partsmay find European business attractive, strategists generally prefer clean companies and that is far from the case.
Private equity firms, on the other hand, thrive on projects of this nature, using their operational and restructuring expertise and the flexibility of being out of the public eye to unlock these complex assets over time in ways that are more difficult for publicly traded companies to manage.
In its short history, Ananym has developed a reputation for striving to work amicably with management to create value for shareholders, and this situation appears to be no different. The fund largely supported LKQ's CEO Justin Jude, who was appointed to the position in July 2024 and has roots in North American business. Under his brief leadership, the company has already taken steps in the right direction – announcing plans to buy back 14% of outstanding shares and divesting non-core assets such as its self-service salvage business, which was sold to private equity in August. The company has also signaled that its specialty business is on the market and expected to be sold in the near future. However, Jude seems to be a little more fond of the European business than these other companies. It might take a little longer to convince him to separate from Europe.
If we've learned anything from LKQ's previous activist campaigns, it's that this company needs a financially astute shareholder representative, not an independent industry manager. They don't need someone to help them with operations, but rather someone to help them financially model, evaluate and possibly implement strategic options and work with the board to find what's best for shareholders.
Given Ananym's reputation as a friendly activist and constructive relationship with Jude to date, we believe this is a perfect opportunity to bring an Ananym representative like Alex Silver to the board, who has extensive financial and private equity experience and brings with him a team of analysts ready to model available opportunities.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist assets.