Active First Quarter for Tire M&A Overshadowed by Global Pandemic

Despite the onset and subsequent rapid spread of COVID-19 and the immense disruption in business activity to follow, Q1 2020 saw the pace of M&A activity return to the highs of 2017, driven primarily by strong retail and manufacturing M&A activity. The vast majority of transactions completed in Q1 2020 were marketed and negotiated in the latter part of 2019 in an environment of clarity and general economic strength. As of the time of publishing, we have seen a significant drop in miles driven and tire sales/service revenue as states implement lock-downs and shelter-in-place orders. These actions will have a significant impact on M&A activity in Q2 as the market looks to find a bottom prior to the anticipated rebound post COVID-19 disruptions.

Meaningful Q1 activity in the retail segment included Dealer Tire’s acquisition of Dent Wizard, as well as Mavis Tire Supply’s acquisition of 112 NTB stores from TBC Corp. The manufacturing segment saw global activity, including Warburg Pincus’ investment in Indian tire maker Apollo Tyres, and tire recycler Liberty Tire Recycling’s acquisition of family-owned Lakin Tire.

Key Takeaways:

  • Strong M&A activity completed prior to a drastic shift in the business environment
  • Transaction activity heavily tilted toward strategic acquisitions driven by consolidation, scale, geographical expansion, and enhanced capabilities
  • Expect significantly lower M&A completion volume in Q2 2020 as strategic and private equity focus turns to crisis management, shoring up operations and change implementation due to COVID-19

Tire Year-Over-Year Change in Units and Dollars

Tire Year Over Year Change in Units and Dollars

Source: Gfk Tires POS Tracking Panel, March 2020

Historical M&A Trends by Period / Sector

Total Transaction Count

Q1 2020 Tire Total Transaction Count

Note: Double-count of transactions which are included in multiple industry sub-sectors/categories, have been removed.
Source:S&P Capital IQ and Stout Research

Transactions per Sector

Q1 2020 Tire Transactions Per Sector

Note: For the 3 month period from January 1 – March 31 for each of the years listed above.
Source:S&P Capital IQ and Stout Research

Retail

Retail M&A Transactions - Q1 2020

Q1 2020 Tire Retail MA Transactions

Source:S&P Capital IQ and Stout Research

Dealer Tire

  • In January, Bain Capital-backed Dealer Tire announced its acquisition of St. Louis, Missouri-based Dent Wizard from Gridiron Capital. Dent Wizard is North America’s largest provider of automotive reconditioning services and vehicle protection products, with over 7,000 customers including over 5,000 car dealership accounts. The combination of the two companies will create the leading aftersales dealer services platform in North America.

Mavis Tire Supply Co.

  • In February, Mavis Tire Supply Co. announced its acquisition of 112 NTB stores from TBC Corp. The acquired stores are located in the Philadelphia, Boston, Atlanta, and Chicago markets, and will enable Mavis Tire Supply to grow its footprint in core markets. The deal will leave TBC’s retail business with 615 locations, and will position Mavis Tire Supply as the second largest independent tire dealer in the U.S.

Wholesale

Wholesale M&A Transactions - Q1 2020

Q1 2020 Tire Wholesale MA Transactions

Source:S&P Capital IQ and Stout Research

Distribution Stox

  • Distribution Stox announced its acquisition of fellow Quebec-based wholesaler Pneus R. Guay, in February. Pneus R. Guay distributes a wide range of tires and wheels from over a dozen brands. The acquisition will strengthen Distribution Stox’s foothold in the Quebec region, and marks the sixth acquisition by Distribution Stox since its founding in 2016.

Commercial / OTR

Commercial/ OTR Transactions - Q1 2020

Q1 2020 Tire Commercial OTR MA Transactions

Source:S&P Capital IQ and Stout Research

Jack’s Tire & Oil / A&E Tire

  • In March, Jack’s Tire & Oil, one of the 25 largest commercial dealerships in the U.S., agreed to merge with Colorado Springs-based A&E Tire. The merged entity will generate upwards of $150 million in revenue across 17 locations and six Michelin Retread plants. The acquisition increases Jack’s Tire & Oil’s foothold in the West Coast of the U.S., and will expand geographic presence to include California, Idaho, Arizona, Utah, and Colorado.

Pomp’s Tire Service

  • In January, Pomp’s Tire Service acquired 19 GCR Tires & Service stores from Bridgestone Americas. The acquisition expands Pomp’s Tire Service’s footprint to 108 commercial truck tire service locations and 17 retread plants across 11 states. The 19 stores operate in nine upper Midwest states: Iowa, Illinois, Kansas, Michigan, Minnesota, Nebraska, North and South Dakota, and Wisconsin. The deal continues GCR’s string of divestitures, and brings the network down to 70 locations across the U.S. and Canada, down from over 200 in recent years.

Manufacturing

Manufacturing M&A Transactions - Q1 2020

Q1 2020 Tire Manufacturing MA Transactions

Source:S&P Capital IQ and Stout Research

Warburg Pincus

  • In February, private equity firm Warburg Pincus invested approximately $150 million in Gurgaon, India-based tire manufacturer Apollo Tyres. Warburg Pincus’ investment in the world’s 14th largest tire manufacturer will take the form of “compulsory convertible preference shares”, and will represent an approximately 10% stake on Apollo Tyres if converted to common equity.

Liberty Tire Recycling

  • In March, Liberty Tire Recycling announced that it has acquired family-owned tire recycler Lakin Tire, creating an entity with the capacity to collect over 180 million tires and generate 2.6 billion pounds of recycled rubber products annually. Lakin Tire operates across both the East and West Coasts of the U.S., and collects over 30 million tires a year from over 6,500 tire retailer customers through its facilities in Santa Fe, CA, and West Haven, CT.

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