Private Equity Firms in the Tire Industry: What Sellers Should Be Aware Of

By: Giorgio Andonian

The tire industry has experienced a surge in interest from private equity firms seeking to acquire tire dealerships. Several factors contribute to this phenomenon:

• Profit Potential: Private equity firms are attracted to the tire industry due to its resilience and steady profitability. As tires are consumable goods, there is a consistent demand for replacements and services, making tire dealerships relatively recession-proof. Tire sales are not negatively impacted by electric vehicles either; if anything, EVs provide a larger opportunity to sell tires due to the rapid tire wear caused by high torque and heavy vehicles. The recurring nature of tire sales and the service aspect of the business contribute to its financial appeal.
• Fragmented Market: The tire industry is highly fragmented, with many small and medium-sized dealerships. This fragmentation provides an opportunity for consolidation, which appeals to private equity firms looking to create economies of scale and maximize profits. While we have seen headlines of regional chains being acquired, there remain thousands of smaller dealer groups across the country.
• Stable Cash Flow: Tire dealerships often generate stable cash flow, making them attractive investment targets for PE firms that prioritize predictable returns.
• Industry Expertise: Some PE firms have specialized teams with experience in the automotive sector, enabling them to bring operational improvements and streamline processes in acquired tire dealerships. Many of these groups have brought on former tire executives to help lead their operations and growth strategies.

As private equity interest in tire dealerships continues to grow, sellers must be vigilant and understand the unique dynamics driving this trend. Selling a business involves more than just signing a deal. Relying on professional advisors, from legal and human resources to M&A investment bankers, sellers will be able to navigate the process towards a successful transaction while implementing protective strategies. Private equity firms will continue to be interested in this space, and many times try and approach tire dealers directly so they have the upper hand in negotiations. By understanding these factors, sellers can make informed decisions and navigate a successful transaction while safeguarding their interests.

Giorgio Andonian is a Managing Director in FOCUS Investment Banking’s Auto Aftermarket Group. With a lifetime spent in is family’s automotive business, he now advises and assists privately held middle market auto aftermarket companies with mergers and acquisitions. Contact Giorgio at [email protected].