It’s M&A season
New year. New diary. New balance sheet. New company? In this respect, 2016 got off to a flying start. No sooner had the year begun than we received news of some high profile, three-digit-million pound mergers and acquisitions. The first and the largest was the acquisition of well-known garage data supplier Autodata (see page 32, Company New section for complete details). However, within 24 hours this was followed by the potentially UK tyre wholesale and retail-changing announcement that Sumitomo Rubber Industries had acquired Micheldever Tyre Services.
After the Graphite Capital-backed management buyout of Micheldever from company founder Tony Todd back in 2006, speculation as to the private equity firm’s exit strategy has abounded. This became particularly prominent in 2010 when the Sunday Times suggested “trade rivals and private equity” were interested in buying the company. Clearly this all turned out to be premature, with the company taking another seven years to receive and accept a suitable bid. But in the end it was a familiar face. And the fact that the successful suitor turned out to be Sumitomo Rubber makes perfect sense. Micheldever has long been associated with the Japanese manufacturer (the world’s sixth largest) – especially with the company’s Falken brand.
At this early stage there are more questions than answers about what the acquisition means for the UK tyre wholesale and retail businesses (Micheldever is one of, if not the top wholesaler and a top five retailer in the country). However, Micheldever’s management has moved quickly to steady the ship by saying there will be know change to its multi-brand strategy (see page 14, UK section for further details). Nevertheless, owing to the fact that the news of this important acquisition broke as Tyres & Accessories went to press, we have an interview scheduled with Micheldever’s senior management that will be published in our next issue (February 2017) in addition to the coverage within this edition’s pages.
Something else that has been motoring recently is the British vehicle registration market – especially the car market. Full-year 2016 registration figures, which were published in the first week of January, reveal that a record 2.7 million new cars were registered across the 12 months of last year. Not only is it a record figure, but it is the fifth consecutive record year. Of course, all good things come to an end, but when you consider the post-Brexit uncertainties that come as a result of what took place in 2016, it is also no surprise that the car industry is being more conservative about its predictions for 2017. In short, the consensus is that the market has peaked and that full-year 2017 registrations will come in at anywhere between 2.75 and 6 per cent less than the 2016 total. The optimists amongst us will point out that 5 or six per cent lower than the fifth consecutive record year is still a very respectable figure (see page 15, UK section for complete coverage of the full-year 2016 registration figures). However, it could also be a sign that times are a-changing.
Of course, news of record registrations and their potential decline doesn’t immediately affect the tyre replacement business – it will take another two or three years to see the full OE pull through effect of such high levels of new car registrations and another before any 2017 dip filters through – but it will affect those supplying the new vehicles themselves first. Again, levels of OE sell-in are likely to dip slightly, meaning replacement market sales will become more important to those most exposed to the OE business . Not such a positive note to end this article on, but a slightly more sobering thought to start the year with any ear-itching prognostications. Whatever these trends end up meaning in practice, you can see the logic in tyre manufacturers increasing interest in owning retail equities – something that brings us right back to the beginning and the news that Sumitomo has bought Micheldever Tyre Services and its Protyre retail chain. With this in mind, could 2017 see more merger and acquisition (M&A) activity? To put it another way, has M&A season come to an end, or has it only just begun?