Hopefully, you’ve had an opportunity to peruse the 2024 MTD 100, our list of the largest tire dealerships in the United States, published in the July edition of MTD.
I’ve looked at it many times!
When examining the MTD 100, patterns, trends and takeaways always become visible.
My biggest takeaway from this year’s MTD 100 is the growing number of large tire dealerships that are either owned or backed by private equity groups.
At the top of this year’s MTD 100 with 2,115 stores is Millwood, N.Y.-based Mavis Tire Express Services Corp., which in 2021 was acquired by a group of investors led by BayPine LP.
With nearly 500 company-owned locations, Les Schwab Tire Centers Inc. is owned by Meritage Group LP, which acquired the Bend, Ore.-based dealership in 2020.
Los Angeles, Calif.-based private equity firm Leonard Green & Partners remains a majority investor in Sun Auto Tire & Service Inc. and has been since 2021. (Sun Auto Tire has grown to include more than 470 locations across 30-plus brand names.)
San Francisco, Calif.-based Percheron Capital owns Big Brand Tire & Service, which has expanded to nearly 210 locations.
Moving down the list, Northern Rock Auto, which does business as Main Street Auto and has 58 locations, also is backed by private equity.
Bloomfield Hills, Mich.-based O2 Investment Partners owns Straightaway Tire & Auto, which has 54 stores.
Audax Private Equity, with offices in San Francisco and Boston, Mass., bought into High Ridge, Mo.-based Dobbs Tire & Auto Centers Inc., which has 42 locations, last year.
Garnett Station Partners, based in New York, N.Y., has a stake in Goodturn Tire & Auto, which does business under nearly 10 different brand names and has a total of 27 stores.
Bestige Holdings, headquartered in Park City, Utah, gained majority ownership of North Salt Lake, Utah-based Burt Brothers Tire & Service, which now has 26 locations, in 2023.
Who knows how many other MTD 100 dealerships have private equity backers? (That’s why they call it “private!”)
One thing is for sure: private equity ownership in independent tire dealerships is here to stay — and not just among the “big guys.”
Smaller dealerships also will continue to be attractive targets for private equity investment and ownership, according to MTD columnist Michael McGregor, a partner at Focus Investment Banking LLC.
McGregor advises multi-location tire dealerships on mergers and acquisitions. He has worked with many private equity firms.
Private equity groups “are in every segment,” he says, and some “are looking for one, two or three locations.
“Historically, private equity’s entry point into multi-location auto repair was collision repair ... and saw that EBITA margins” in the body shop sector were appealing.
“After a while, they asked, ‘What’s similar to that?’ and said, ‘Let’s look at the tire and auto service business,'" which, according to McGregor, is “very predictable and solid.
“And there are synergies as you grow bigger,” including the combination of technology platforms, enhanced buying power and other advantages.
The amount of available capital — or “dry powder” — within reach of private equity firms also is high.
According to S&P Global, the monetary value of dry powder reached $2.59 trillion at the end of 2023, a nearly 10% year-over-year increase.
Incidentally, S&P Global estimates that Leonard Green & Partners alone was sitting on $15.3 billion in dry powder near the end of last year.
“If you look at the chart of how dry powder has grown, it’s almost a straight line up,” says McGregor.
What will accelerate private equity investment in tire dealerships? Interest rates.
“When interest rates are high, you’re either going to be very selective with the acquisitions you make or you’ll put more equity in now,” says McGregor.
“Frankly, private equity gets more interested in acquiring tire dealerships and can get more competitive with valuations when rates are lower.
“Imagine there’s a 25-store chain out there and then imagine that a year-and-a-half from now, interest rates have come down substantially. There’s going to be more interest in that chain and more people willing to bid on it.”
In his July 9 report to Congress, Federal Reserve Chairman Jerome Powell said that the Federal Reserve Committee does not believe “it will be appropriate to reduce the target range” — the target interest rate set by the Federal Reserve — “until we have gained greater confidence that inflation is moving sustainably toward 2%,” which is the Feds’ longstanding goal.
During the same session, he noted that recent “monthly readings have shown modest further progress” toward the 2% target.
Regardless of what happens with interest rates this year or next, it’s a sure bet we'll see more private equity investment in — and ownership of — tire dealerships, both big and small.
This will continue to change the face of not only the MTD 100, but the tire dealership channel in general. Get ready for it.
