American Tire has 71 distribution centers and a fleet of 700 trucks providing coverage to 36 US states, and offers 60,000 distinct products serving an average of 35,000 customers each month. Annual revenue is $1.4 billion giving the company an approximate 6% share of the total $24.3 billion market for replacement tires in the United States. American Tire is the market leader with turnover approximately four times the size of its closest competitor.
Founded in 1935, American Tire is the only US distributor that carries the flag brand of the four leading tire manufacturers. The Company also offers one of the largest selections of custom wheels with over 140 different styles, and provides related service equipment, tire changers, balancers, wheel weights and tubes.
The company is well placed to expand in what is a fragmented market, yet one that offers historically stable growth, according to Gary Long, Chief Operating Officer of Investcorp: “In 1986, the total market for replacement tires in the USA was 164 million units, a figure that had grown to 234 million units by 2004. American Tire predicts this growth rate to continue, while the average cost of a replacement tire will increase as consumers seek higher quality products. The company is forecasting that its own revenue will expand approximately 50% over the next five years.
“American Tire’s expansion plans anticipate both organic growth and entry to new areas through acquisition. Greater penetration of existing brands, a focus on higher-margin business, as well as the forging of relationships with car dealerships, will achieve organic growth. American Tire recently reached agreement with General Motors to supply the motor manufacturer’s 4,000 dealerships in the US, and is looking to establish similar arrangements with other motor manufacturers.
“Opportunities through acquisition are similarly attractive in a market where there are 200 competitors. Thanks to an already strong market position, American Tire is able to enjoy good post-transaction synergy savings through increased leverage of its existing logistics infrastructure. Two purchases made by the Company during 2004 added an additional $150 million in revenue with low attendant operating costs. Investcorp will actively assist American Tire’s management team in capitalizing on this strong competitive position and building of value for investors. “
The acquisition of American Tire underlines the role of Investcorp’s advisory directors. These are seasoned corporate executives who have worked in major enterprises and bring operations experience, business judgment and management acumen to assessing investment opportunities and supporting portfolio company management. Two Investcorp advisory directors, Stephan Kessel, past Chief Executive of tire company Continental AG, and Alain Reheuil, CEO for Europe sales marketing and distribution at tire company Michelin, were involved in evaluating this acquisition. They will also apply their specialized experience to assist American Tire’s management team in capitalizing on the company’s strong competitive position. This is an example of how Investcorp’s corporate investment model, which involves a combination of financial, strategic and operational skills, works in practice.
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