Titan International buys Carlstar Group for US$296 million

Titan International, Inc. (TWI) has bought Carlstar Group LLC. for approximately $296 million in a cash and stock transaction, which closed on 29 February 2024. The transaction price represents a multiple of approximately 4x Carlstar’s full-year 2023 pre-tax profits (adjusted EBITDA) of $73 million. Carlstar reported revenues of around $615 million in 2023.

Titan reports that “Carlstar brings significant new customer relationships in multiple channels, including leading wholesale distributors, national retailers, commercial servicing dealers, and OEMs.” The fact that Carlstar adds further diversification to Titan’s product portfolio, especially in outdoor power equipment, power sports and high-speed trailers, where Titan does not have a presence, is another part of the rationale behind the purchase.

According to Titan, the resulting combination of Titan and Carlstar creates “the largest pure play speciality tyre manufacturer covering commercial and consumer end markets”. Carlstar also expands Titan’s existing wheel/tyre assembly capabilities, providing further value for existing and new customers.

Carlstar brings withit four manufacturing facilities – Aiken, South Caroline; Jackson and Clinton, Tennessee; and Meizhou, China – along with 12 internally managed distribution centers in North America and Europe.

The purchase price was approximately $296 million and consisted of $127 million of cash and $169 million of TWI equity (approximately 11.9 million shares of Titan’s stock based on a volume-weighted average price per share for transactions in Titan common stock for 45 consecutive trading days ending on February 28, 2024 date equal to $14.43), not inclusive of estimated transaction costs of $7 million and some other adjustments.

In order to fund the cash portion of the transaction, Titan entered into a new domestic credit facility, effective February 29, 2024. The new five-year credit facility, with Bank of America as agent, was increased to $225 million (previously $125 million).

Carlstar is majority-owned by investment funds affiliated with American Industrial Partners Capital Fund V.

Commenting on the news, Paul Reitz, Titan president and CEO, stated: “I am delighted to announce our acquisition of Carlstar, which closed this morning. This is a transformative deal for Titan as it expands our manufacturing and distribution footprint while also further diversifying our product portfolio and key customer relationships, making Titan a “one-stop shop” within the specialty wheel and tyre space. Carlstar’s exciting catalogue of products are utilized primarily by consumers, which is a much different market than Ag. In outdoor power equipment and power sports, Carlstar wheels and tires can be found on products such as ATV/UTVs, lawn mowers and golf carts. Their tires can also be found on high-speed trailers where performance is a key differentiator. In the Ag market, Carlstar products are typically found on equipment such as backhoes and small skid-steer units, giving Titan a best-in-class offering.

“I have spent a significant amount of time visiting Carlstar’s plants, and meeting their people, and we can tell you that Carlstar is a well-run business, on a good trajectory, and we expect that success to continue under Titan’s ownership. While there is not a significant overlap in the legacy Titan business and Carlstar from a product and manufacturing capability standpoint, we expect to achieve sizeable commercial and operational synergies, as we combine these organizations. We are looking forward to sharing more specific information with the shareholder community on our expectations for this transaction, and our plans for the expanded Titan, in the coming months.”

Titan Chairman Maurice Taylor, Jr. noted: “I want to congratulate Paul and his entire team on the acquisition of Carlstar, which is a great strategic and financial fit for Titan. Maintaining a best-in-class product portfolio has always been a key focus for Titan and today’s acquisition is consistent with that strategy. I also want to welcome Kim Marvin of AIP to our Board of Directors. Kim and his team at AIP, along with the management team, did an outstanding job growing Carlstar and positioning the business as a market leader.”

Kim Marvin added: “Titan is an ideal fit for Carlstar and I am thrilled to have been invited to join the Board of Directors. During our time at AIP as owners of the business I gained an appreciation for the significant positive momentum that the Carlstar team has created and look forward to further supporting them as part of the Titan family.”