When you consider that they paid £85 million for Micheldever Tyre Services (MTS) in 2006, it is no surprise that equity house Graphite Capital is willing to sell the company now it is in the position to command a £200 million price tag.
Back then Graphite were cast as the backers for a management buy-in/buy-out that kept the independent tire wholesaler in independent hands and out of the corporate grasp of "big business." Now it seems that the motivation to sell the U.K.’s largest single tire wholesaler (along with its 50 Protyre retail depots) emanates primarily from the same equity house that kept it in the hands of its managers four years ago.
Micheldever Tyre Services is said to have started out in 1972. Over the next 34 years Tony Todd grew the company into a market leading independent wholesaler. By the time he sold it in 2006, MTS had 550 staff, sales reaching £148 million annually and pre-tax profits amounting to £5 million a year. Since then, turnover and staff levels have almost doubled to £275 million and 900 people in 2009, with MTS particularly benefiting from its exclusive distribution of some leading upper mid-range products during the recession.
But who’s going to buy this time? With the cost of any purchase nearly twice what it was last time round, and with credit facilities this large hard to come by, the chances of a further management buyout seem unlikely.
The next possibilities to tick off the list are MTS’s former suitors – Kwik-Fit. Back in 2006, the U.K.’s largest tire retailer was very much in the hunt. However, such was Todd’s zeal to keep the business in the hands of its management that insiders told Tyres & Accessories that the company told Micheldever was not “for sale to Kwik-Fit at any price.” Besides, if recent reports about Kwik-Fit’s current financial position are anything to go by (its private equity owners reportedly had to pump £20 million into the company to balance the books at the end of 2009), it isn’t in a position to buy into a wholesaler of this size.
What about the premium tiremakers? With Continental having exited the equity business almost a decade ago, Pirelli having sold off Central Tyre to Stapletons at the end of 2008, Goodyear Dunlop focusing its efforts on the HiQ franchising program and Michelin concentrating on restructuring its ATS Euromaster network, the only remaining brand of a sufficient size is Bridgestone. However, the combination of the same economic pressures that face the rest of the market and the fact that Bridgestone marches to the beat of its own long-term plans mean they are not likely to bid either.
So who’s left? Reports published in The Sunday Times when news of the sale first surfaced on Apr. 11 suggest potential buyers as “trade rivals and private equity.” However, having ruled out the premium manufacturers and most of the largest retail chains, this really only leaves direct competitors Group Tyre and the Itochu-backed Stapletons in the “trade rivals” category.
When it comes to the identity of any prospective private equity owners, it is anyone’s guess. Could Halfords’ owners Phoenix Partners see Micheldever and its 50 retail branches as a short cut to its plans to double its network of 200 centers? In this market it could just as easily be a bank no one has ever heard of.
Whoever buys MTS, you can see why it has got a £200 million price tag. At the last count in 2009, MTS claimed a 20% share of the U.K. tire market. In unit terms this means an estimated 7 million tires a year. Of these, more than a million are said to be Kumho-branded products, with a further 750,000 being healthy margin 4×4 orientated tires across all brands. In addition, some say MTS’s Micheldever Station headquarter branch is the busiest tire depot in the world. (Tyres & Accessories)
