Shifting Out of Neutral – Automotive Aftermarket M&A Activity Poised to Accelerate in 2026

Todd Cassidy engaged with aftermarket corporates, investors and advisory professionals at AAPEX[1] and SEMA[2] in Las Vegas in November. Several critical themes emerged

• Market leaders continue to demonstrate resilience through demand volatility, supply chain disruption and shifting consumer patterns
• Enthusiast businesses maintain internal optimization focus as margin pressure and slower discretionary demand heighten near-term deal activity selectivity
• Tariff clarity, interest rate moderation and fund distribution requirements expected to drive accelerated 2026 deal activity
• Investors and operators are preparing for increased activity as assets reach natural exit timelines and financing markets remain open to quality credits
• First Brands Group bankruptcy proceedings highlight long-standing diversified platforms challenges and emerging opportunities for focused operators

RESILIENCY DEFINES MARKET LEADERS

The automotive aftermarket has confronted inventory volatility, fluctuating consumer demand, international trade disruptions and persistent COVID-19 overhang throughout the past two years. Revenue stability and margin maintenance define success in current market conditions.

Investors have a high degree of conviction for and continue to target businesses with

• Demonstrated operational resiliency – Non-discretionary and failure-driven categories, including collision and mechanical repair consolidators serving more than 295 million vehicles,^[3] attract significant buyer interest and achieve attractive valuations
• Diversified supply chains that expand supplier counts and sourcing locations – Manufacturing levels in Thailand, Vietnam, Malaysia and India increased from 2024, reflecting a decade-long shift as Chinese cost advantages diminish and transportation logistics become more complex
• Pricing strategies protect margins – Non-discretionary products and service businesses have largely protected margins through disciplined pricing. Suppliers note concerns about deferred maintenance, yet replacement costs far exceed repair alternatives with average new vehicle prices above $50,000.

Vertical integration strategies continue gaining momentum as companies establish nearshore and domestic production footprints to protect margins and control delivery timelines. With qualified acquisition targets scarce, many aftermarket operators are investing in capacity expansion or greenfield facilities.

ENTHUSIAST BUSINESSES MAINTAIN INTERNAL FOCUS

Despite sustained buyer interest, enthusiast segment M&A activity remains subdued as demand headwinds impacting revenue and cost pressures compress margins. Financial healthy and growing companies continue to transact, but many sector participants are not positioned to do so.

Most enthusiast businesses report stable operations and an internal focus. Many companies are using this limited deal flow period to strengthen operations through equipment investments and facility enhancements. New product development remains a priority to keep offerings current and support demand.

Key market adaptation strategies include

• Leveraging internal high-mix, low-volume production and sourcing capabilities to attack new markets (i.e., a truck accessories business tailoring product design of off-road enthusiast products for commercial fleet use)
• Independent aftermarket suppliers pursuing concentrated growth efforts in dealership and original equipment service channels
• Adjacent enthusiast markets (i.e., ATV/UTV, marine and recreational vehicles) targeting similar consumers with products manufactured or sourced within existing production facilities. While these markets exhibit cyclical characteristics, entering them from a zero base can generate meaningful top-line growth

EXTERNAL FACTORS POSITION MARKET FOR ACCELERATED DEAL ACTIVITY

Financial sponsors demonstrate strong appetite for deal flow but express caution regarding near-term liquidity plans for aftermarket portfolio holdings. Most sponsors remain reluctant to monetize assets given recent volatility and questions surrounding platform resiliency.

This dynamic will shift as limited partners increase distribution requirements. Funds raising capital will need demonstrated liquidity events to support fundraising efforts. M&A activity is expected to increase in 2026 as tariff and trade environments stabilize, interest rates moderate and investments reach natural exit vintages.

Post-pandemic market activity illustrates this trend. Deal volume accelerated across the broader market from late 2020 through 2022 with the aftermarket sector experiencing particularly strong momentum.

Many assets held for four and five years will reach their natural monetization horizon in the coming year. A significant portion of leveraged buyout transactions from this period will also face loan maturities that prompt refinancing decisions. Credit markets continue to support high-quality transactions. As a result, some assets will move to sale processes while others will pursue recapitalizations. Companies planning recaps or dividend distributions may find favorable market conditions.

LESSONS FROM DIVERSIFIED PLATFORM CHALLENGES – FIRST BRANDS GROUP

First Brands Group bankruptcy proceedings dominated industry discussions throughout the week. The ultimate outcome remains uncertain – restructuring, company sale, asset sale or alternative solutions all remain possible.

Industry participants avoided speculation and instead examined the situational drivers and operator lessons. Although First Brands has specific internal issues, diversified aftermarket platforms have shown a tendency to fragment over time, a trend evident across several decades.

The current First Brands should not be confused with the original platform of the same name. The earlier entity, acquired by Clorox in 1998, included STP and Prestone automotive fluids and Glad plastic packaging products. The present-day platform was created through more than twenty acquisitions across distinct aftermarket categories, beginning with Trico as the foundational business. A graphic summarizing key brands and acquisition timing is included below.

Several brands within the platform have transitioned through earlier consolidations and subsequent separations before being reconstituted in the current structure.

First Brand’s strategic path forward hinges on lessons from prior aggregation and disaggregation cycles. Key insights emerge from evaluating the similarities and differences across current and prior attempts to build a consolidated aftermarket platform, including:

Points of Similarity

• End-Market – The majority of the portfolio serves the non-discretionary automotive aftermarket providing consistent demand
• Branding and Marketing – Consistent end users across products enables integrated parent company targeting
• Back Office Operations – All businesses operate with high SKU counts and product velocity, allowing integration under similar HR, IT and finance structures

Points of Differentiation

• Customers – While common customers exist across divisions, specific buyers within these organizations often differ. For example, Fram and Brake Parts may both supply AutoZone yet purchasing managers for filters and brakes are separate groups and do not pursue bundled purchases which limits sales synergy for the diversified parent company
• Manufacturing – Production occurs across an expansive footprint in dedicated facilities. Diverse product assortment requires specialized production equipment and processes. No single plant can produce Horizon towing products and Anco windshield wipers due to distinct equipment and supply chain requirements
• Financial Profile – Business segments demonstrate varying margin and capex profiles, creating capital planning tensions regarding investment prioritization and ROI optimization

The platform shares characteristics with other diversified aftermarket models, yet operational and financial differences across product groups create complexity that limits long-term integration and raise questions regarding portfolio design, capital allocation and value maximization within a consolidated structure or focused standalone businesses.

Multiple outcomes remain viable. First Brands could continue as a diversified platform with a refined and more disciplined operating model. Alternatively, select product groups could deliver greater value as independent entities with targeted commercial strategies and optimized manufacturing footprints. Both outcomes can create opportunity. Competitors may capitalize on near-term disruption and well-capitalized buyers may pursue divested assets or businesses gaining share.

Footnotes

[1] Automotive Aftermarket Products Expo

[2] Specialty Equipment Market Association

[3] North American car parc and expanding miles traveled metrics