MTD Exclusive: Will Mergers and Acquisitions Continue in 2020?
Mergers and acquisitions of tire dealerships dominated tire industry headlines in 2019. And they continue to do so. (Story update: On Feb. 11, it was announced that Mavis Tire Supply Co. is buying 112 NTB Tire & Service Centers from TBC Corp.)
In this excerpt from an interview conducted by Modern Tire Dealer Editor Mike Manges for MTD’s 2020 Facts Issue, tire industry analyst and MTD columnist John Healy addresses the possibility of more mergers and acquisitions at the distributor level; two companies that have been particularly active on the acquisition front, Monro Inc. and Greenbriar Equity Group/GB Auto Service; and why independent tire dealers are attractive from an M&A perspective.
MTD: When it comes to mergers and acquisitions, what do you foresee happening at the tire manufacturer, wholesale-distribution and retail levels in 2020? Do you see more tiremaker-driven wholesale-distribution alliances, joint ventures, etc., like National Tire Wholesale (Michelin North America Inc. and Sumitomo Corporation of Americas) and TireHub (Bridgestone Americas Inc. and Goodyear Tire & Rubber Co.), forming? What about independent wholesale distributor-driven partnerships like Tire Distributors of America LLC buying group, which is owned by Max Finkelstein Inc. and Treadmaxx Tire Distributors Inc.? Has the wholesale-distribution channel reached a mergers and acquisition saturation point?
Healy: As it relates to mergers and acquisitions, we expect a mixed level of activity in 2020. As it relates to distribution alliances, we expect more stability than action on that front as alliances continue to be shaped and strategies going to market are firmed up and implemented. From our perspective, most of the alliances formed over the last two years are still in early stages of integration and customer acquisition/retention. Given this, we think it will be at least another year before more meaningful changes take place in the distribution world.
That said, we expect merger and acquisition activity at the installer level to remain robust. We continue to see a very active Monro on the mergers and acquisition scene, including this year’s efforts to move westward in terms of expansion efforts. Beyond Monro, there are multiple private equity groups which appear visible in their interests in assets. Looking to 2020, with an election on the horizon and another successful year in 2019, we think it’s reasonable that installers might look to be more willing sellers than in years past.
MTD: Monro continues to populate its geographic white space with strategic acquisitions, most recently in California, Nevada and Idaho. The company also is transitioning select locations to what it calls a more “tire-oriented” banner. What are your thoughts on Monro’s growth and branding strategy, particularly the chain’s push into the western U.S.? Do you think a point will arrive when Monro will ease off the accelerator when it comes to acquisitions?
Healy: Acquisitions have been a significant part of the growth strategy at Monro, and we do not see this changing. Over the past three years, Monro has spent roughly $230 million and completed the acquisition of 168 stores. This compares to around $360 million spent and 289 stores opened over the prior five-year period. So yes, the pace of acquisition has moderated some and the assets that have been acquired have pivoted a bit towards larger proprieties.
As it relates to what assets might be the most of interest to Monro, it’s always hard to tell. Recent efforts to establish itself in the western region (of the U.S.) seem logical as the company continues to move towards where the car population resides. Given this, we would expect the western region to get more attention from a mergers and acquisitions perspective as the company looks to scale its investments.
That said, Monro is not forgetting about its business in the east. The acquisition of Free Tire Service in May 2018 was an example of a sizeable, quality operation acquired by Monro, which fits in nicely with existing operations. These types of acquisitions are still likely very much of interest to the company.
MTD: Greenbriar Equity Group/GB Auto Service has emerged as a big player, having made a number of high-profile independent tire dealer acquisitions over the last two years. Is the independent tire dealer market ripe for more private equity group activity? What makes independent dealerships attractive to private equity groups?
Healy: Independent tire dealers, in our view, remain quality unique strategic assets. We expect acquisitions of dealers will continue to remain at a robust level as we believe private equity buyers look to expand and fill in geographical gaps as they build out scale. From a big picture standpoint, servicing fleets as it relates to mobility offerings remains a strategic goal for a number of outfits. Having more geographical reach to be where the cars are located is a requirement.
Additionally, the economics of tire dealerships are still rather sound and can be enhanced with sourcing power and branding. Given this, scale and fit are always priorities for acquirers. Outside of these items, the durability of the service business is something that is attractive as buyers continue to look for more defensive retail concepts, given evolution of e-commerce.
Click here to read the full interview with Healy.