Micheldever’s Up For Sale, But Who’s Buying?

When you consider that they paid £85 million for Micheldever Tyre Services (MTS) in 2006, it is no surprise that equity house Graphite Capital is willing to sell the company now it is in the position to command a £200 million price tag. Back then Graphite were cast as the backers for a management buy-in/buy-out that kept the independent tyre wholesaler in independent hands and out of the corporate grasp of ‘big business.’ Now it seems that the motivation to sell the UK’s largest single tyre wholesaler (along with its 50 Protyre retail depots) emanates primarily from the same equity house that kept it in the hands of its managers four years ago.

Micheldever Tyre Services is said to have started out in a shed in 1972. Over the next 34 years Tony Todd grew the company into a market leading independent wholesaler with a loyal customer base. By the time he sold it in 2006, MTS had become a truly multi-million pound business, with the staff count reaching over 550 people, sales reaching £148 million annually and pre-tax profits amounting to £5 million a year. Since then turnover and staff levels have almost doubled to £275 million and 900 people in 2009, with MTS particularly benefitting from its exclusive distribution of some leading upper mid-range products during the recession.

But the question now the company is up for sale again is: who’s going to buy this time? With the cost of any purchase nearly twice what it was last time round, and with credit facilities this large hard to come by, the chances of a further management buyout seem unlikely.

Not for sale to Kwik-Fit at any price…

The next possibilities to tick off the list are MTS’s former suitors – Kwik-Fit. Back in 2006, the UK’s largest tyre retailer was very much in the hunt. However, such was Tony Todd’s zeal to keep the business in the hands of its management that insiders told Tyres & Accessories that the company founder snubbed the Edinburgh-based retail giant telling them Micheldever was not “for sale to Kwik-Fit at any price.” Besides if recent reports about Kwik-Fit’s current financial position are anything to go by (its private equity owners reportedly had to pump £20 million into the company to balance the books at the end of 2009), it isn’t in a position to buy into a wholesaler of this size. Add in the fact that company has invested heavily in developing its industry leading national distribution system and it would seem to rule them out.

What about the premium tyre makers? With Continental having exited the equity business almost a decade ago, Pirelli having sold off Central Tyre to Stapletons at the end of 2008, Goodyear Dunlop focusing its efforts on the HiQ franchising programme and Michelin concentrating on restructuring its ATS Euromaster network, the only remaining brand of a sufficient size is Bridgestone. However despite the company’s openly ambitious plans to hold a first or second position in every sector in the UK, the combination of the same economic pressures that face the rest of the market and the fact that Bridgestone marches to the beat of its own long-term plans mean the Japanese-owned tyre giant is not thought to be in the running this time.

So who is left? Reports published in The Sunday Times when news of the sale first surfaced on 11 April suggest potential buyers as “trade rivals and private equity.” However, as we have pretty much ruled out the premium manufacturers and most of the largest retail chains, this really only leaves direct competitors Group Tyre and the Itochu-backed Stapletons in the “trade rivals” category. When it comes to the identity of any prospective private equity owners, it is anyone’s guess. Could Halfords’ owners Phoenix Partners flush from the purchase of Nationwide Autocentres see Micheldever and its 50 retail branches as a short cut to its plans to double its network of 200 centres? Who knows? In this market it could just as easily be a bank no-one has ever heard of.

The busiest branch in the world?

Speaking to T&A, Graphite Capital representatives declined to comment on what they referred to as “market speculation” and wouldn’t even confirm or deny that the company is up for sale. Instead they simply pointed to the fact that “the last four years have gone extremely well” perhaps suggesting a veiled confirmation that the company is indeed an attractive sale.

Whoever buys MTS, you can see why it has got a £200 million price tag. At the last count in 2009, MTS claimed a 20 per cent share of the UK tyre market. In unit terms this means an estimated 7 million PCR/4×4/LTV tyres a year. Of these, more than a million are said to be Kumho-branded products, with a further 750,000 being healthy margin 4×4 orientated tyres across all brands. In addition to the 50 Protyre outlets in the chain, MTS’s headquarter branch near the railway station at Micheldever is reportedly to be the busiest tyre retail depot in Europe, some say the world.

And that’s all if the sale does go through as the “market speculation” suggests. Let’s not forget that the last time Micheldever was linked to a sale of this size they were said to be in the hunt for National Tyres & Autocare. And that all came to nothing.