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Bain Capital building ‘European tyre distribution group’

October 18, 2017

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This year specialist private equity firm Bain Capital has been busy making strategic acquisitions in the European tyre wholesale and retail sectors. First off the company bought Italian tyre wholesaler Fintyre from previous owners Bluegem Capital back in March. Then at the end of June the firm added the German Reiff operation to its portfolio, an acquisition that was subsequently approved by the EC in August. Tyres & Accessories recently interviewed Ivano Sessa, one of Bain Capital Private Equity’s managing directors, and learnt that there are plans for further mergers and acquisitions with a view to creating a “larger tyre distribution group across Europe”.

Tyres & Accessories: So far Bain Capital has been involved in significant tyre distribution/retail acquisitions in both Italy (Fintyre) and Germany (Reiff), what was the thinking behind these acquisitions?

Ivano Sessa: To put this in context, it’s worth me explaining how Bain Capital Private Equity operates. Most of our professionals have operational expertise and sector knowledge and many have consulting backgrounds, as opposed to other firms that draw more professionals from investment banking. Our approach to partner with management teams builds great businesses and improves operations.

In this case, we have partnered with a strong management team led by CEO Mauro Pessi to acquire first Fintyre and then Reiff, now under the umbrella of the holding company European FinTyre Distribution (EfTD). The companies are leaders in tyre distribution across channels, both wholesale, retail and, in Germany, B2C:

In wholesale, the EfTD group owns the number one wholesaler in Italy (with different brands such as Fintyre and Franco Gomme), while in Germany the group owns Reiff’s distribution business (e.g. the Tyre1 brand), the co-leader in tyres wholesale with a strong presence in the South West region.

In retail, the group has approximately 90 stores, around half in Italy and half in Germany. The retail stores are key to the wholesale business as they enable an understanding of the end market and customers in a deeper way and therefore are strategic for the group.

As Bain Capital, we have invested in several other distribution businesses, such as chemicals, food, building materials and auto parts. The common features that have attracted us to these companies and sectors are attractive drivers of growth and value creation. Essentially, it’s about economies of scale which allow the largest player in a market to typically grow more than its competitors. Customers get a higher quality of service and certain cost benefits. The large companies are usually also able to attract talented people to deliver this growth.

The group is currently in the top three of largest tyre distribution groups in Europe and we plan to continue to grow both organically and through acquisitions.

T&A: Why was now the right time? Do you expect further market consolidation in the European tyre wholesale sector?

Ivano Sessa: The European tyre distribution market is very fragmented within countries and at the continental level. Some small and medium tyre distributors in Europe lose out by being too small – they have low profit margins mainly due to insufficient scale. We’ve seen and driven the formation of larger groups in auto parts distribution and this gives us confidence that there is a way to create a larger tyre distribution group across Europe that can grow and service its customers better.

T&A: What are the plans for these companies?

Ivano Sessa: We want to grow the business, both organically and through mergers and acquisitions (M&A).

There are several initiatives that the management team are planning that will continue to improve the quality of service, product range and efficiency of distribution. These should help the group increase its market share.

On the M&A side, we are talking to several companies across Europe and expect to make acquisitions in the next year or two. As Bain Capital, we have total available capital of around 10 billion euros across our private equity business that can be invested to support the consolidation.

T&A: How long do you intend to hold them? What is your exit plan?

Ivano Sessa: First of all, we are long term owners of businesses. Once we’ve grown the business we will look at all the traditional exit routes for private equity investments, including listing the group on a stock exchange. We have brought several distribution businesses to the public markets and continue to see strong demand for these companies from equity investors. Other exit routes are also possible.

Are the acquisitions connected? Are any further acquisitions planned (especially in the UK)?

Yes, the acquisitions of Fintyre and Reiff are connected and part of a broader group (EfTD).

T&A: Do you plan to create a single European wholesaler with representatives in strategic markets or to run them as separate businesses?

Ivano Sessa: The acquisitions will be under the EfTD umbrella. EfTD is a holding company based in London that was set up to enable the consolidation in Europe. Each situation is different, but the plan is to manage each acquired company as a separate commercial brand entity, while exploiting the combined scale to achieve benefits as part of the EfTD group.

T&A: What are your plans regarding tyre retail? Do you own any currently? Would you consider investing?

Ivano Sessa: We currently own approximately 90 stores, around half in Italy and half in Germany. In each European country we invest in, we plan to have wholesale and retail operations.

T&A: What trends have you noticed in tyre wholesale, what do you expect to happen next?

Ivano Sessa: In terms of growth, we expect the rebound in new car sales over the past years to increase the demand for replacement tyres. We expect most of the group’s revenue growth to be in the form of moderate market share gains. In fact, in terms of market structure, we recognise the importance of good wholesalers and driving scale for several reasons:

Firstly, the proliferation of SKUs (measures) makes the product ranges more complex every day and therefore increases the strategic importance for both OEMs and retailers to have good distribution partners across the value chain.

In addition, there is pressure at both OEM and retail level to better manage inventory and optimise cash flow. This further increases the relevance of large wholesalers that can manages these trade-offs professionally.

Lastly, the customer channels are becoming even more fragmented in certain countries with players such as mechanics and car dealers selling more and more tyres every day. This trend means only leading wholesalers with a strong go-to-market strategy and logistics will be able to compete effectively in the next years.

We think these trends will continue in the coming years as there is plenty of inefficiency across the value chain, given the fragmentation of the markets.

So there you have it, we can expect further acquisitions in different markets in the European tyre wholesale and/or retail spaces at various points during the next two years – all with a view to creating a European tyre distribution group. And Bain Capital are already in talks with a number of firms. Watch this space!