Kwik-Fit For Sale for £250 million?
Kwik-Fit, the UK’s leading tyre retailer, has reportedly been put up for auction by its owners PAI Partners. PAI, a French private equity group, bought Kwik-Fit from CVC Capital Partners for roughly £800 million in 2005 after seeing off competing bids from suitors including global tyremaker Bridgestone. Newspaper reports from sources including The Guardian and The Scotsman published on the 30 and 31 May respectively suggest that Kwik-Fit has once again attracted the attention of private equity groups including Blackstone, KKR and Permira. However both reports also speculate about the likelihood of Bridgestone’s involvement in bidding for Kwik-Fit’s latest change of ownership. A source close to Kwik-Fit’s owners told Tyres & Accessories that the press reports were inaccurate and “there is no formal sale process,” but confirmed that there is a formal sale process for the firm’s insurance arm.
Nevertheless at this early stage industry observers are already touting a low potential price tag of £250 million for the sale of Kwik-Fit. To put this into perspective, this nine digit figure is the lowest amount linked to the sale of the company its 40-year history. Here’s a potted [sale] history: Sir Tom Farmer, who founded Kwik-Fit in 1971, sold the tyre retail chain to Ford for £1 billion in 1999. By August 2002 the carmaker had decided that that tyres were not “core business” and sold Kwik-Fit to CVC Capital Partners for less than half what it had paid (£330 million). PAI bought Kwik-Fit from CVC for £800 million in June 2005.
The reason behind the apparent low-ball pricing of Kwik-Fit this time round is its debt. Currently Kwik-Fit owes around £780 million, making a price as high as PAI or Ford have paid in the past unattractive to new investors. Nevertheless despite the company’s high debt load, potential suitors “are thought to be impressed by trading at Kwik-Fit, which has benefited from the recession…”, according to The Guardian. The paper quotes “analysts” as predicting that Kwik-Fit’s sales this year will jump by 10 per cent to more than £1 billion and that operating profit could reach £150 million, adding that sources close to the company said: “Business is performing strongly…and revenue is on an upward trajectory.”
If these projections manifest as the analysts say, Kwik-Fit will have achieved an impressive turnaround. In December 2009, PAI was forced to put more cash into Kwik-Fit in order to avoid breaching banking covenants. For its part Kwik-Fit said recently that the company is now “17 per cent ahead of its profit target.”
Talk of sale since September 2008
As is often the case with tyre holdings that are owned by private equity houses, talk of the latest Kwik-Fit sale has been doing the rounds since September 2008. Then the speculation, which related to the sale of the company’s German retail operations, turned out to be wide of the mark, but there was no smoke without fire. At the end of May 2009, the Kwik Fit Group sold Pit Stop, its German fast fit operation, to BluO International Affiliates, a German private equity investor. The deal followed worse than expected performance from the company’s tyre retail business in the country. In 2007 Pit Stop set itself the goal of expanding its network from 400 to 750 outlets, however by the time of the sale the chain only totalled 408 depots. Bluo has a reputation for investing in restoration and reportedly aims at a nominal purchase prices.
More recently (on 14 February 2010) dormant sale speculation was reawaken by the news that PAI recently was putting Kwik-Fit’s insurance arm up for sale for around £200 million.
With around 670 branches to its name and a strong fleet sales operation, Kwik-Fit is the largest tyre retailer in the UK. Kwik-Fit is estimated to supply 5 million tyres a year in the UK (roughly a sixth of the total market). The company also runs a further 500 branches across Europe and recently started embarked on a Russian franchise project. No-one from Bridgestone or Kwik-Fit was available to answer Tyres & Accessories’ questions on the latest sale reports.