As the new author of MTD’s monthly Mergers and Acquisitions column, I’d like to take a moment to introduce myself.
I grew up in the automotive industry. My parents started an automotive equipment business in 1988 and I always thought of it as my “big brother.”
When the opportunity to sell our family business came along, it felt a little strange — almost like selling a sibling. When the process began, I left my investment banking job to help and to experience a transaction from the trenches.
It was during this time I fully realized my passion for the automotive aftermarket, despite having been around it my entire life. We did sell and the outcome was great for everyone involved. I went back into investment banking, too.
Today, as a managing director with Focus Investment Banking, I help others sell the businesses they’ve built and nurtured — people who often treat their businesses as their family. My focus is the automotive aftermarket, which is full of incredible people and businesses.
With that out of the way, we all know that consolidation in the tire industry — including among tire dealerships — is nothing new. In fact, our industry is fairly advanced in its consolidation cycle. But merger and acquisition activity is set to accelerate further in the tire industry before it eventually slows. Why?
Private equity loves the automotive aftermarket and that includes tire dealers. I speak with private equity groups about the tire industry every week and the demand for high-quality, platform-level businesses has never been greater.
This demand comes from private equity firms, as well as public and private equity-backed consolidators who are eager to capitalize on the tire industry’s unique strengths. There are some other flavors, like search funds, independent sponsors and family offices circling the space, as well. There are more buyers today than there ever have been.
So what makes tire dealerships so appealing? First, there’s the industry’s recession resilience. Barring extreme circumstances like a pandemic that keeps people off the roads, replacing bald tires remains a consumer spending priority, even during economic downturns.
Second, the tire dealership business model is relatively immune to disruptions. Industries today face rapid upheaval. Artificial intelligence, for example, is disrupting sectors like software engineering, web design and coding. Electric vehicles are reshaping traditional car dealerships, while new direct-to-consumer models from manufacturers are putting that industry at risk. Even oil and lube — a mainstay of automotive service — has seen its future questioned. But tires? They’ll always wear out and they’ll always need replacing.
Another factor is the availability of executive talent. While the tire industry does face a technician shortage, consolidation has brought an influx of experienced leaders ready to scale businesses. This leadership pool makes the tire space particularly attractive to private equity firms looking for growth opportunities.
Finally, and perhaps most importantly, there’s the concept of multiple arbitrage.
Have you ever heard about an acquisition and thought, “How could they pay that much for that business?” The answer often lies in multiple arbitrage, which occurs when acquisitions lead to an overall valuation that exceeds the sum of the parts.
Here’s how it works.
Imagine a single tire store generating $1 million in revenue at a 10% margin. At a valuation of 3x EBITDA, the store is worth $300,000. Now, imagine a five-store group that commands a 7x multiple due to its size and scale. If the group acquires that single store, its value increases —simply by becoming part of the larger platform. That same store, now integrated, might be worth $700,000.
This value growth occurs before considering process improvements, synergies or economies of scale. Private equity firms see this opportunity and act — thus driving the wave of consolidation we’re experiencing.
The tire industry’s combination of recession resilience, a durable business model, strong leadership and the potential for multiple arbitrage makes it a favorite among private equity investors.
For tire dealers, this is good news. It means more opportunities to grow, scale or exit on favorable terms. Whether you’re looking to consolidate, partner with investors or prepare for a future sale, the market is rich with potential. For those willing to invest in growth, as well as the needed equipment and training to handle continued evolution in the vehicles our industry services, the future is bright. In fact, it’s likely brighter than it has ever been.
I’m thrilled to bring you insights like these in my monthly column for MTD and I look forward to exploring these and other topics further. Here’s to a bright future for you, me and the entire industry.
