The third quarter of 2017 saw an increase in tire distribution & manufacturing M&A activity led by the retail sector. In aggregate, when measured at an annual run-rate the quarter was as strong as any quarterly period in the past four years. Contributing factors include (i) continued retail consolidation; (ii) increased optimism regarding infrastructure spending nationally, positively affecting the construction/industrial sectors and OTR product pricing, thus creating a tail-wind for commercial and OTR businesses and transactions; (iii) a continued desire to exceed organic growth on the part of large market players; (iv) a macro environment which seems to be improving globally; and (v) continued asset price inflation as evidenced by stocks, real estate, and credit market performance.
Transaction volume in 2017 seems set to eclipse prior years going back to 2014. We expect activity to continue into the first half of 2018, especially as optimism in business conditions holds. Meaningful corporate and personal tax reform being enacted has the potential to further drive growth and should also have a positive effect on M&A activity.
We feel the consolidation trend will continue as a theme across each of the segments featured, and private equity interest (plus an abundance of idle capital) will help to stoke healthy valuations across the board. The following charts capture global activity over the first three quarters of 2017, with notable third-quarter transactions expanded upon.
Strong retail transaction activity in the U.S. drove an increase to 28 retail transactions for the nine months to September 2017, a significant increase from 23 transactions for the prior year, and 16 transactions for 2015.
Monro Muffler Brake, Inc. acquired 20 auto repair stores in the Midwest, including eight operated by a Car-X Tire & Auto franchisee. Monro acquired the Car-X franchise business in April of 2015, and since then has acquired 30 Car-X stores from franchisees. This most recent move allows Monro to continue its expansion through the Midwestern region.
Monro also acquired 12 Speedy Auto Services stores in Michigan. The acquisition of the Speedy chain of stores, all of which will be converted to the Monro Muffler brand, expands Monro’s Michigan presence to 33 locations.
Transaction activity levels gained steam during the nine months to September 2017 with 11 transactions, up from seven during the prior year period, but off from 18 transactions for the same period in 2015.
European Tyres Distribution Limited agreed in June to acquire REIFF Tyre and Automotive Technology. REIFF, which has a recognizable presence across the retail, wholesale, and e-commerce value chains, operates in four warehouses and 46 retail outlets. The strategic acquisition of REIFF by European Tyres Distribution Limited marks a key step toward internationalization, capitalizing on a highly fragmented European tire distribution sector.
The first three quarters of 2017 saw 10 commercial/OTR transactions, very consistent with the same period in 2016 and 2015.
Love’s Travel Stops & Country Stores, Inc. reached an agreement to purchase Speedco, Inc. from Bridgestone Americas, Inc. Love’s increases its network to 323 tire services and lube facilities, including the 52 trucking services and lube locations coming by way of the Speedco acquisition.
Love’s recently became a retreader, opening four Olive Rubber-affiliated retread plants throughout the U.S., each capable of producing up to 400 units a day. Love’s is utilizing its retread program to phase out sales of used tires throughout the network. Added geographic diversity, coupled with the strong commercial retail service of Speedco, will both aid in driving Love’s retread initiative as well as overall expansion.
Camso, Inc. completed its acquisition of Omni Industrial Tire in August of 2017. Camso’s acquisition will allow it to continue growing its Material Handling distribution and tire service footprint in southern Texas. Omni’s experience and presence in Texas will contribute to Camso’s growth trajectory in this market by building upon its tire distribution and service offerings.
In September, T&W Tire agreed to purchase the assets of 16 TCi Tire Centers, Inc. commercial services locations across the Midwest. This is Michelin’s second major divestiture of a group of TCi locations in the past three months (see the Snider acquisition in the table above).
With the Snider and T&W divestitures, TCi’s network decreases to 86 commercial service locations. T&W, through this acquisition, expands its network both inside and outside of Texas into the Midwest, with locations being added in Kansas and Missouri.
Activity continued to pick up during 2017, with 13 transactions through the first three quarters versus eight for the prior year period, and seven through the third quarter of 2015.
Kenda Rubber Industrial Co. Ltd. acquired STARCO Europe A/S, a Denmark-based supplier of wheels for applications ranging from mowers to large industrial machinery. The acquisition allows Kenda to expand its position in Europe, while also taking advantage of Starco’s expertise in applications, polyurethanes and wheel design, which, when coupled with Kenda’s tire development capabilities, will give the group an enhanced position in the market.
Pilot Automotive, Inc. has wholly acquired luxury truck accessory manufacturer Rolling Big Power, Inc. (RBP). Pilot’s purchasing power and distribution capabilities, when matched with RBP’s innovative products, provides for Pilot to elevate the truck builder experience with the strengthened brand.