Merger and acquisition activity was subject to both significant catalysts and developing headwinds in 2022. The continued retail consolidation by the major and mid-tier retail consolidators remained strong coast to coast, with strategic buyers and private-equity-backed platforms driving activity, while new private equity entrants expressed interest in obtaining a retail consolidation platform or pursuing a “ground up” retail consolidation strategy. Investors clearly see a larger runway for investment returns in the retail sector over time, boding well for continued M&A and exit planning for retail business owners.
Rapidly rising interest rates, geopolitical instability and pre-election uncertainty negatively impacted the M&A market to a degree in the second half of the year, with storm clouds continuing to form and a somewhat murky outlook in general for 2023.
Retail
The retail segment saw several major deals this year, with all signs pointing to continued consolidation in the face of macro headwinds. Despite inventory challenges, consumers hit the road with miles driven increasing year-over-year, and the average age of vehicles on the road doing likewise, boding well for replacement tire purchases and related vehicle services.
Notable leaders in the industry include Mavis Tire Supply, now operating over 1,300 retail outlets across nine brands; Monro Inc. which operates just under 1,300 outlets; and notably Discount Tire, which owns over 1,100 stores while clearly positioning itself as the innovative omnichannel, branded retail powerhouse in the past year with its acquisition of Tire Rack. Other acquisitions of note include Mavis’ purchase of Jack Williams Tire & Auto Service Centers and its 39 retail stores and the purchase of Action Gator Tire and its 23 outlets. Tire Discounters, once a small regional retailer, has grown to super regional status, now operating 181 locations in eight states, acquiring seven locations in November at the time of this writing.
Commercial and OTR
Commercial and specialty tire dealers in general had a strong year given the demand for truck, ag, construction and industrial tires and related services. With pricing power shifting to the stocking dealers maintaining an ability to efficiently deliver transportation, infrastructure, construction, agriculture, and industrial tire product and service, customers in these end-markets continued to maintain and expand their operations throughout 2022.
Transactions of note included Southern Tire Mart acquiring 38 units plus 11 retread plants between its acquisition of Redburn Tire and a network of GCR Tires & Service locations. Pomp’s Tire Service Inc. acquired Tredroc Tire Services Inc. as well as certain GCR locations. McCarthy Tire Service acquired Piedmont Truck Tires, demonstrating activity in the Eastern U.S. through a string of acquisitions. A notable cross-border transaction involved Titan International divesting its Australian wheel and tire business to OTR Tyres.
Wholesale
A revival in wholesale M&A activity in the first half of 2022 was spurred by certain large and transformational transactions across North America.
U.S. AutoForce acquired Max Finkelstein, consolidating its east coast presence from New England to Florida. American Tire Distributors executed two major transactions: the divestiture of its Canadian business, and the acquisition of Monro’s wholesale business. Later in the year, Turbo Wholesale Tire received a significant investment from Kingswood Capital Management, a Los Angeles-based private equity firm.
What Can We Expect in 2023?
In 2023, we expect to see continued retail consolidation among the major market players, as well as the possibility of new entrants in the form of private equity investors taking a keen interest in the retail sector. On the commercial/OTR front, M&A activity is likely to maintain its current pace given the many attractive investment and consolidation opportunities yet to be tapped in this market. We expect that the wholesale M&A landscape may see a slower pace into the first quarter or half of 2023, with activity picking up later in the year. This is primarily due to the continuing rationalizing of inventories to match demand, and certain supply chain issues persisting, which clouds the ability to forecast in certain corners of the sector. In addition, the unraveling of the SPAC (special purpose acquisition companies) experiment—created to pool funds in order to finance a merger or acquisition within a set time frame—added further confusion as without what was seen as a viable exit option for several of the remaining very large dealer constructs, the future for these large public “blank check” entities is now less clear.
While we believe industry M&A will continue apace given the trends outlined above, demand may be met with continued headwinds that are creating uncertainty due to the confluence of several continuing issues: the geopolitical situation, energy and commodity price volatility, labor issues and supply chain disruptions. Add to this rerouting of energy trade routes globally, rapidly increasing interest rates with the intent of taming inflation, and the potential for a recession (in North America and Europe) and the picture becomes one of continued uncertainty until some of these factors are behind us.
AUTHORS
Steven Rathbone is managing director for the investment banking group at Stout. He has more than 17 years of experience providing investment banking, strategic advisory, and corporate financial services, with a primary focus on sell-side mergers and acquisitions. He is an experienced advisor across all stages of M&A transactions, primarily serving privately held middle market clients.
Philip Kane is CEO of Turbo Wholesale Tires and senior advisor at Stout. Previously he was the Chief Commercial Officer in Key Markets at Pirelli in Milan working in their commercial truck tire business. Prior to Pirelli, he spent 11 years working for Goodyear Tire & Rubber Company. Previously, he has held executive roles with Genuine Parts Company (NAPA) and Snap-On, Inc. He is the author of the book, The Not So Subtle Art of Caring: Letters on Leadership from John Hunt Publishing, London.
