A few months back I attended a tire-buying group’s annual meeting after helping one of that group’s founding members sell their business to a private equity group. I hear there was some discussion as to whether or not to invite me back, as if I was the bad guy. All I did was help a tire dealer get rich.
As capital continues to flow to the big market consolidators, it’s clear that acquisitions won’t slow down unless the economy cools or some big deal blows up. Trying to stop it is like trying to stop capitalism. It’s not going to happen. Instead of fighting it, let’s examine some ways tire dealers and others in the industry ecosystem can harness the bull market.
Small tire dealers
Small tire dealers can harness the mergers and acquisitions (M&A) bull market by improving their competitive position. For small tire dealers this involves taking an honest look at the following:
- life stage and risk profile of the owner;
- financial and physical condition of the business; and
- the customer loyalty you engender in the market.
Step back and take an unvarnished look at your business and ask if you have the energy and resources to improve it. Then look at the growing national and regional chains and ask yourself, “What do they do better than me?”
To start, they often have a consistent store image — visible, clean locations with similar footprints in high traffic parts of town. They promote their business consistently in good times and bad. Maybe they have a consistent in-store customer service delivery process.
They are consistent in many ways. Are you? If you’re in a market that competitors will be eyeing, you need to protect your position.
Getting bigger and more profitable in your market will make you a stronger competitor. Retaining your people by giving them more opportunities for advancement will make you a stronger competitor. Not staying in the run-down part of town forever and moving into new, higher-income areas will make you a stronger competitor.
Growing your sales, locations and profits improves your competitive position and business value, and it makes you wealthier. Maybe the timing isn’t right for you to ride this bull, but you’ll be ready for the next one if you prepare now.
Mid-size tire dealers
With 10 to 15 or more stores, tire dealers can harness the M&A bull market by taking advantage of the raised level of interest in acquisitions and becoming mini-consolidators themselves. You’re bankable. You are a proven entity. You’ve probably done acquisitions already in an ad-hoc fashion. Many of the larger consolidators can’t be bothered with one- to three-store acquisitions. That’s your sweet spot. Develop a list of small competitors in markets and areas in which you are interested in expanding. Go visit the stores and rank them by location attractiveness and then by how close the owner appears to be to retirement. Call them up (don’t email) and start meeting face-to-face with the retirement-age owners first and move down the list. Then keep in regular touch.
Solidify the hold on your market by growing locations, sales and profits to improve your business value. Be perceived as the dominant player in your market and you’ll be worth even more when you ride the bull.
Tire buying groups
Tire buying groups are wonderful organizations that level the playing field for tire dealers on purchases. In addition, they provide them with innovative programs like low-cost workers’ compensation and short-term lending programs. They’ve helped their members grow and become wealthy.
Sometimes a member will become an attractive acquisition candidate and leave the group. Take pride in that — embrace it and use it as a marketing tool to attract new members because there’s not much else that you can do about it. Maybe look into making all of your programs more “sticky” so it’s painful to leave. You might also facilitate business transfers among members by knowing which members will buy out retiring or struggling members to keep volume purchases all in-house.
Taking the bull by the horns
Consolidation is inexorable and unpredictable in the retail tire business.
Even tire manufacturers have to deal with the aftermath of a tire dealer’s acquisition, and it can wreak havoc on their market share. That is why they need to be channel- and customer-smart while dealing with the national chains and maneuvering the consolidating independent tire dealer market.
Maybe manufacturers need to get better at picking and choosing which of the independents they want to partner with in the long term. And vice-versa!
It’s fun to watch and pontificate about all the activity, but there’s an old Spanish proverb that goes, “Talking of bulls is not the same as being in the bullring.”
