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What's Next for Discount Tire and Tire Rack?

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Bruce-Halle-Pete-Veldman.jpg
Bruce Halle (left), the late founder of Discount Tire, meets Pete Veldman, the late founder of Tire Rack. Discount Tire has announced that it will acquire Tire Rack.

Discount Tire's acquisition of Tire Rack "is earth-shattering in terms of a couple of companies that pretty much focus (only) on tires, but do it in different ways,” says Michael McGregor, tire dealership mergers and acquisitions expert and a partner at Focus Investment Banking.


“Discount Tire is location-based. Tire Rack is direct-to-consumer. And Tire Rack has a mobile installation element in its direct-to-consumer model, too.”

John Healy, managing director and analyst at Northcoast Research Holdings LLC, says the Tire Rack acquisition - which is scheduled to close on Dec. 31 - “is rather bold for Discount Tire."


National Hockey League star “Wayne Gretzky used to say, ‘You skate to where the puck is going to be - not where it's at.’ And I think that’s what they are doing here."


Consumers are still primarily using the internet to research tire information and pricing, according to Healy, who also writes MTD's monthly Your Marketplace column.


“But I still think they want to (deal with) someone at the counter. Tire Rack is one of the major stops for (research) - if not the largest. 


“At some point, more consumers will purchase (online) and by having its retail outlets integrated with Tire Rack,” Discount Tire becomes what Healy calls “the installer of choice for the largest online retailer. It’s a natural, symbiotic relationship and it’s very smart. 


“If I were one of the other larger, regional tire chains, I would be thinking, “Should we do the same?’”


McGregor - who writes MTD’s monthly Mergers and Acquisitions column - sees “synergies” between Tire Rack and Discount Tire’s existing America’s Tire e-commerce arm. 


“Instead of having two separate organizations doing the same thing, chances are they will find a way to synergize the two.”


Healy expects Tire Rack and America’s Tire to remain separate entities. “I think eventually, if you’re the folks at Discount Tire, you figure out which one of your e-commerce platforms has the most traction, but that doesn’t mean you discontinue operating both of them,” he says.



“I think there will be synergies running both e-commerce platforms separately. We’ve seen this with online travel. A lot of the online travel websites are owned by one company, booking.com. I can imagine that would be a parallel to what can transpire here over the next few years.”


The deal also opens the door to other possibilities, says Dennis McCarron, partner at Cardinal Brokers Inc. and author of MTD’s monthly Business Insight column.


“It’s unclear what Discount Tire’s intentions are yet, but they could expand to a similar model that American Tire Distributors and TireHub have or continue to dominate the online sales category - or both.


“You may also see Discount Tire incorporate its line of tires into Tire Rack or operate it as a separate entity for a bit and strategize.” (Discount Tire markets its own Arizionian private label line.)


“We will have to see what Discount Tire shows us. It does feel like a similar move to TireHub, though.” (TireHub, which has 71 locations, is jointly owned by Bridgestone Americas Inc. and Goodyear Tire & Rubber Co.)


“It remains to be seen if Discount Tire will get aggressive with (its) ‘preferred installer’ mainly or only being Discount Tire stores or if they leave Tire Rack’s current algorithm and methodologies in place."


The transaction also “validates” the direct-to-consumer business model, according to McGregor. And it could accelerate interest in mobile tire installation. (Tire Rack has a mobile service division.)


“I think the folks at Discount Tire are very smartly seeing (opportunities) with” direct-to-consumer business models “that are not real estate-heavy,” says McGregor.


“Not too long ago, Bridgestone invested in mobile tire operations. Who else wants to get on the bandwagon and how are they going to do it? Maybe (mobile) will now take off because other people will want to double-down?


“Discount Tire has some new thinking here.”


How will the deal impact other players in the market?  “Smaller dealers need to be thinking about how they differentiate themselves and it probably comes down to full-service car care,” says McGregor. 


“One advantage they have is that traditional (tire) dealers offer a broader range of services than Discount Tire.”


There could be “some ripple effects” on the supply side, too, according to McCarron. But the transaction “is not a fire sale, where Tire Rack was struggling for many years or was failing. It’s definitely a smart move on Discount Tire’s part to go from pure brick-and-mortar to adding a distribution channel.”


McGregor adds that more transactions involving direct-to-consumer models are not out of the question in 2022.


Direct-to-consumer companies, in the M&A world, “are just valued a lot higher than traditional-model companies. It has to do with margins, at the end of the day.”


Acquiring Tire Rack “is really a smart thing that Discount Tire is doing,” says Healy. “A property like Tire Rack doesn’t come around very often. Anytime a market leader and another market leader get together, you need to pay attention to it.”


Earlier this year, Discount Tire CEO Dean Muglia told MTD Editor Mike Manges that "nothing is off the table."


Click here to read MTD's Dec. 3 report on the acquisition announcement.

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