12 minute read
Mergers and Acquisitions
from Modern Tire Dealer - February 2022
by EndeavorBusinessMedia-VehicleRepairGroup
How to get ahead of a shrinking workforce
GET CREATIVE IN BUILDING YOUR PIPELINE OF NEW TECHNICIANS
By Dennis McCarron
Afew years ago, it was stated that the average age of an ASE master-certified technician in the United States was approaching 60 years old. That’s a lot of wear and tear on the human body — a lot of busted knuckles, kneeling on cold concrete and staying after hours to finish a job that should have taken an hour, but a busted bolt turned it into a nightmare.
The average age of an ASE-certified technician today, according to one source, is 40 years old. How can that be? Well, I know what didn’t happen was a flood of new, energetic, able-bodied and eager folks decided during the pandemic to become ASE master-certified. What it appears to be is two-fold.
First, the baby boomers retired. Boomers made up a huge percentage of this kind of technician. If the average age of this technician was almost 60, you know the top age wasn’t more than about 65. So over the last few years, there’s been an increase in retirements by sheer necessity.
The second factor is a little harder to see. Under the big number is a breakdown of how it spreads out. Fifty percent of technicians are over 40 — there’s no cap on the top number — while 25% are 30 to 40 years old and 25% are 20 to 30 years old and are likely closer to 30 by the nature of testing requirements.
It would be interesting to see the numbers in five-year increments, but that data is not available.
So we’ve seen a great tide of retirements and a shrinking workforce decades in the making. Part of this can be blamed on the enormous push by the education system to put high school kids in college and drop any kind of shop or vo-tech classes.
Amazingly, the estimated job growth for technicians is expected to decline just over 3.5% over the next 10 years, even though wages are rising, technology is advancing at breakneck speeds, shops are finally evolving into the shops of tomorrow and the number of cars on the road isn’t going down.
Simple math tells you if demand is consistent or increasing and the ability to service that demand is declining, you’re going to have some problems. What can you do to get ahead of this situation? Let’s look at three potential solutions.
1. Get aggressive. This is going to be the most controversial point. Some refer to this as “stealing” technicians from other shops. I’ve never been a big fan of this concept. However, I’ve had many lively debates about what actually constitutes a “theft.” If a technician is very unhappy where he or she is currently working and you can vastly improve that person’s work life, is it stealing? I’m sure we could all debate about where the line gets drawn.
2. Get ready to spend a lot of money on training. This is the sweet spot. You hire for attitude and approach to work in general and teach/train the specifics. For too long as an industry, we just hired people and they got right to work, pumping out oil changes and flat repairs. We are in a drastically different time now. Owners of tire dealerships must begin to dedicate a significant allocation of resources in training and development in young technicians. Weekly time must be spent on skill development. There’s a myriad of types of training available, from one-on-one training with local experts to online and industry-recognized programs like those offered by the Tire Industry Association.
3. Get rid of the old ways of looking for employees. Two of the most frustrating things to hear in our industry are “I’m too busy to go out looking for techs” and “Well, it’s been slow, so I don’t think I can afford another tech right now.” As an industry, we need to go out looking for people who aren’t looking for us. Unemployment is 3.9%. There aren’t many highly desired mechanics wandering around town, desperate to find a job. And as mentioned earlier, the funnel of high school graduates entering skilled trades was cut off years ago. You must create the interest yourself. You must connect with the right person, create a multi-faceted development plan and then execute and follow through.
Even though the warning bells were sounded years back, all is not lost. This isn’t a doom and gloom column. It’s a wake-up call to change.
There’s plenty of profit to be made, which can support a robust training and development program for young technicians. And there are still bad employers that have good employees who want a change of scenery. Get creative in your employee search. ■
Dennis McCarron is a partner at Cardinal Brokers, one of the leading brokers in the tire and automotive industry (www.cardinalbrokers.com). To contact McCarron, email him at dennis@cardinalbrokers.com.
Meet a dealmaker
JOE TOMARCHIO DISCUSSES MONRO’S M&A STRATEGY, HOW DEALERS CAN PREP TO SELL AND MORE
By Michael McGregor
Joe Tomarchio Jr. is a special adviser for acquisitions to the CEO of Monro Inc. In his 18 years with Monro, he’s been an executive vice president in charge of acquisitions, tire sourcing and marketing and between 2006 and 2014 he ran all store operations for the 1,100 locations and more than 7,000 employees Monro had at the time.
Joe is the original “Mr. Tire” in that he co- founded Mr. Tire in 1970 with his brother, Fred, and sold it to Monro in 2004. Joe has been involved in more than 60 sizable acquisitions over the past 18 years and has been part of the team that has seen Monro triple in size over that same time period.
There is no one with more experience with acquisitions in the tire and service business, so we interviewed Joe to learn more about him and Monro’s ideal current targets.
McGregor: Mr. Tire had 26 stores doing $52 million in revenue back in 2004 and had an amazing per store average back then. What was going on with Monro at the time? Had they been thinking, “We’ve got to expand beyond mufflers?” Is that why they acquired Mr. Tire?
Tomarchio: Monro recognized that the exhaust business was peaking with the advent of stainless steel. Prior to stainless steel, in the Northeast — with all the salt on the roads — you’d be replacing exhaust systems every two or three years. But with the advent of stainless steel, they last 10-plus years.
The CEO of Monro at the time was smart to realize that he’d better take Monro in a different direction by getting into the tire business and getting into underhood because Monro was highly focused on undercar.
McGregor: What was behind your decision to sell Mr. Tire to Monro?
Tomarchio: We looked at our situation and figured that we had to get substantially larger or someone could come into our market and potentially eat our lunch. Although we had number one market share in the Baltimore, Md., market at the time, we were caught in that space of being too big to think small, too small to think big.
To really grow exponentially, we would have had to leverage our balance sheet up and take a risk that we just weren’t willing to take at that time.
Our thought process was that we didn’t want to be worse off in 10 years from where we were at that time. We’d been through the years of high inflation, longshoreman strikes, trucking strikes, rubber company strikes, tire shortages, the Gulf War and two oil embargoes. I mean my brother and I had seen it all.
Although we persevered through all that, my brother felt strongly we could do better by focusing on the real estate business. That is the main reason why we sold the business and kept the real estate.
We thought that there were going to be two kinds of tire dealers in the future — the small independents that had probably five stores or less, who had that personal touch with employees and customers, and the mega dealers. The guys in the middle were going to get hurt or cramped because they can’t keep the personal touch and they don’t have the leverage of a Monro, a Firestone or a TBC Corp. on a lot of different levels.
I’m talking about logistics, marketing, management, access to capital, training and spending the kind of money that you need to spend to stay on top of the new technologies that are coming into the marketplace.
McGregor: Did you know at that time that Monro was looking to grow as fast as it has?
Tomarchio: When Monro was recruiting me, they made it very clear that “The one overwhelming they were going to have a thousand thing I see is that tire dealstores in the foreseeable future. I could ers don’t collect for the see how this could happen. Monro has always had a strong value of their service, their convenience and their trustworthiness,” says Joe balance sheet and being a publicly Tomarchio, special advisor traded company, it had continual for acquisitions to Monro access to capital. So now I’m at Monro, I’ve got this Inc.’s CEO. “They just don’t charge enough.” strong balance sheet behind me and I have every one of the CEOs I’ve worked with saying, “Joe, use your resources, your contacts (and) your knowledge of the industry to help us grow exponentially.”
I had the ability — and still do, for the most part — to pick up a phone and get somebody on the phone.
McGregor: What are some of the more notable transactions that you led for Monro?
Tomarchio: Oh, I’ve been involved in some great ones. First of all, because of my tenure in the business, a lot of dealers we acquired were friends and business associates of mine through decades of being in the business and sitting on different manufacturers’ advisory councils or going on dealer trips and to conventions. So I had a lot of contacts.
Bob Dabrowski at Tire Warehouse was a great one, up in New
Monro acquired Rancho Cucamonga, Calif.-based Mountain View Tire & Service Inc. in 2021. The dealership had 30 locations throughout southern California. Its founder, Nick Mitsos, was MTD’s Tire Dealer of the Year in 2011.
England (with) 40 some locations. He’s still a friend of mine. Ken Towery Tire, God bless his soul, was a great acquisition. Chris Jones at Tire Barn lives about three miles from me here in Naples, Fla. Ron Kramer down in Tidewater, Va., had 21, really nice Goodyear stores.
The Mitsos family at Mountain View Tire in California are great operators (and) Allen Tire in the Los Angeles area, as well. Dan and Diane Hennelly at Tire Choice in Florida, Lewis Wexler at Free Service Tire in Tennessee, Skip Lightfoot’s Skip’s Tire in the (San Francisco) Bay Area — a lot of great ones.
McGregor: What is Monro currently looking for in acquisitions? What types of businesses and geographies are top of mind for you or most attractive?
Tomarchio: We are highly focused on acquiring good retail operations. They could be 100% service or they could be 100% tires or any combination in between. Any place that fits our model in the U.S. we’re interested in, but we are laser-focused right now on the South and southwestern United States, looking for platforms in Texas, Alabama, Arizona and New Mexico, as well as expanding our existing footprints in North Carolina, Georgia and Florida.
We like good retailers that have invested in their business and have a strong track record of profitability. We like acquiring a good business with a great customer base, a great reputation and quality employees.
Quality people take care of the number one asset, which is the customer base. We honor all the tenure of the employees that are coming on board. If they’re on their benefits, they transfer over to us — no waiting.
I think we have 8,400 employees now and the lion’s share of them are from acquisitions. Our track record speaks for itself. We take care of our people. And I’ve got to tell you, our new CEO, Mike Broderick, is a people person. And he is out in the stores quite a bit because he understands how important that is. Under Mike Broderick, we’re upgrading our stores, really focusing on the human capital and making sure our stores are staffed properly. We’re in a great position with a great balance sheet to take it forward.
McGregor: Any advice for tire dealers in terms of what they should do to prepare their businesses before a sale to a company like Monro?
Tomarchio: The one overwhelming thing I see is that tire dealers don’t collect for the value of their service, their convenience and their trustworthiness. They just don’t charge enough.
They think they have to be the lowest price. And I see that when they get hit with a price increase and they hesitate to pass the price increase along.
You do need to be competitive, but the number one thing I would tell people is raise your prices. Number two is that a lot of tire dealers defer investments in equipment, technology and building maintenance. We’re then faced with the dilemma of “What’s it going to cost us to bring these into the 21st century?” Sometimes the view’s not worth the climb and we pass on those businesses.
And the third thing is if you’re looking to sell your business, you need to take a year — preferably two — and separate church and state. You can’t run your personal affairs out of your business. Separate them so that you have a clear financial statement that you can (use to) quantify the expenses that are related directly to the business from the expenses that are not inherent to running the business.
McGregor: So what’s Monro’s current philosophy regarding keeping the name of some of these tire dealerships versus changing them to Mr. Tire, Tire Choice or Monro Auto Service & Tire Centers?
WE WANT TO HEAR FROM YOU!
Nominate a candidate for MTD’s 2022 Tire Dealer of the Year Award
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Jim and Tommy Duff - our Tire Dealer of the Year Award recipients - prepare for Southern Tire Mart’s next growth phase
September 2021 | Vol. 102, No. 9 | $10 | www.moderntiredealer.com
1. BUSINESS SUCCESS 2. MARKETING SKILLS 3. MANAGEMENT SKILLS 4. INDUSTRY KNOWLEDGE 5. COMMUNITY INVOLVEMENT
Do you know an independent tire dealer who excels in these areas? Nominate him or her today!
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