Keystone Automotive Industries Inc. of Pomona, one of the largest distributors of collision repair parts in the nation, said Wednesday that it has signed a definitive merger agreement with North Star Plating Co., the latest sign of the growth of the local automotive aftermarket industry.
The merger with another major parts distributor comes after Keystone's acquisitions of four other auto parts firms following its initial public offering in June.
"From a geographical strategy, it gets us in the markets we couldn't get to otherwise," said Charles Hogarty, president and CEO of Keystone. "We've picked up existing markets in really major areas, where [North Star] already had strong customer relations."
The acquisitions and double-digit demand for its radiators, recycled bumpers and paint, among other products, pushed sales at the company up 18.8% for the six months ended Sept. 27 compared with the year-earlier period, to $63.5 million. Net income rose 92% to $2.3 million.
The company's stock price has surged from $9.25 last summer and is trading just under its 1996 high of $17.25. It closed up 37.5 cents on news of the merger, to $16.375 on Nasdaq.
Keystone is part of an overlooked but growing local industry, said Jack Kyser, chief economist for the Los Angeles Economic Development Corp. It is one of the 1,700 firms employing 31,000 people in the automotive aftermarket industry here, he said. The local industry has annual sales of $8.9 billion.
The aftermarket industry benefited from the recent California recession, he said.
"When people get nervous about losing their jobs, rather than buying a new car they get their cars fixed instead," he said.
The California car culture also strengthens the demand for aftermarket products. Drivers seek parts that improve the car's appearance or upgrade its performance, Kyser said.
Keystone distributes mainly aftermarket collision repair parts, including remanufactured alloy wheels, its newest product.
The aftermarket collision repair parts business is tied closely to the demands of the automotive insurance industry, Hogarty said. At a time when insurance companies are being pressured to lower premiums, the use of lower-priced generic or recycled parts for collision repairs can help keep costs down, he said.
"Most of the insurance companies are requiring that we use at least some aftermarket parts in fixing the vehicle," said Al Miller, manager of In & Out Auto Body & Paint in Burbank.
The aftermarket collision industry is also a seasonal one. Hogarty predicts a good year because of the bad weather battering the Midwest, where North Star operates. Keystone will add Brainerd, Minn.-based North Star's 20 service centers to its existing 47 service centers, which are in 26 states. The company will now have a presence in 31 states.
Keystone's recent acquisitions include Stockton Plating in Northern California; Augusta Bumper & Glass; two Body Max facilities in Atlanta, Ga., and Chattanooga, Tenn.; and AfterMarket Parts & Supply, which has five facilities in Alabama.