Speed and size of transactions reflect pressures on smaller distributors
Just three months into 2014 and already three wholesalers have been acquired by larger companies.
“I am amazed at the speed at which the consolidation is occurring in 2014, as well as the size of some of the latest transactions,” says industry analyst Nick Mitchell, senior vice president, research, for Northcoast Research Partners LLC in Cleveland, Ohio, and author of Modern Tire Dealer’s Your Marketplace column. “I think it reflects the growing pressures weighing on the smaller distributors, and the fact that those that are committed to growing via acquisitions are becoming more eager to move first before someone else poaches on their next target.”
Mitchell told MTD in January that the consolidation of distributors would be driven by two things. “Large synergies can be gained through scale when it comes to distribution, and fitment proliferation is a growing problem for the smaller, and often less well financially capitalized, distributors. As a result, I see no end in sight for the consolidation trend.”
The first acquisition this year was made by K&M Tire Inc. of Delphos, Ohio, which purchased the assets of Mid-Tex Wholesale Tire LLC in Waco, Texas. The company did not disclose the purchase price. K&M Tire operates 16 distribution centers throughout the Great Lakes, Midwest, and Great Plains regions and serves customers in more than 20 states. K&M Tire President Ken Langhals told MTD at the company’s annual dealer meeting in January that he expects gross profit to continue to be a challenge both for wholesalers and retailers. “Our gross profit margin continues to get squeezed. I don’t see that easing up. I think there’s going to continue to be consolidation.” (See page 43 for MTD’s report on the 2014 K&M Tire dealer meeting.)
Then American Tire Distributors Holdings Inc. (ATD) announced the purchase of Hercules Tire & Rubber Co. on Jan. 28 and Terry’s Tire Town Holdings Inc. on Feb. 19. According to the 8-K form filed with the U.S. Securities and Exchange Commission, ATD will pay $345 million to purchase Alliance, Ohio-based Terry’s Tire Town, plus up to $20 million in “additional consideration contingent upon the occurrence of certain post-closing events.” ATD paid $310 million (plus up to $10 million for performance-related and other post-closing events) for Hercules Tire Holdings LLC. That adds up to a maximum of $685 million for the two entities. What is ATD getting for that?
* Hercules Tire & Rubber Co.
* TDW (Tire Dealer’s Warehouse), the tire wholesale division of Hercules, with 15 warehouses in California, Arizona, Texas, Illinois, Ohio, Florida, Oregon, Seattle and Colorado, six distribution centers and a 250,000-square-foot warehouse in China.
* Terry’s Tire Town’s 10 distribution centers and one commercial tire operation in the mid-Atlantic, Metro New York, New Jersey and New England area.
The Hercules purchase also gives ATD a chance to expand overseas through Hercules’ export division in Canada, according to Bill Berry, CEO and president. In addition, ATD gains a value brand. While ATD’s Capitol private brand has approximately 100 SKUs, Hercules has more than 800.
Founded in 1972 with a single retail store, Terry’s Tire Town moved into the wholesale distribution segment in 1984. Over the years, and facilitated by a 2010 recapitalization led by an investor group organized by Talisman Capital Partners, the company expanded via greenfield openings and the acquisitions of Summit Tire and Englewood Tire Wholesale in 2011. Terry’s Tire Town exited the retail business in October 2011.
ATD opened in the New Jersey, Long Island and New England markets via greenfield openings over the last two years. By combining with Terry’s Tire Town, ATD will enhance its ability to service tire and automotive service retailers in these U.S. markets, the company says.