CHARLOTTE, N.C.—Maestro, a little "Northern Exposure" music, please.
After moving relentlessly to implement its nationwide distribution strategy across the western and central states, Heafner Tire Group Inc. has put a northern piece of the puzzle into place.
The firm has agreed, effective July 21, to acquire American Tire Distributors (ATD), the wholesale operations of Merchant's Inc.
The purchase, for an undisclosed sum, gives Heafner its long-sought foothold in the northeast quadrant of the U.S. and what the Charlotte-based company calls its "fourth distribution platform."
For Manassas, Va.-based Merchant's, the sale will provide a capital boost for its stated goal to double the size of its retail chain over the next three years. The company currently operates 116 retail and five commercial locations. Once the ATD purchase is final, Merchant's will retain its Manassas Distribution Center to feed its outlets.
In turn, Heafner gets ATD's nine warehouses in the mid-Atlantic and northeastern states of Virginia, North Carolina, Maryland, New York, Pennsylvania and West Virginia.
The prospect has company President and CEO Donald C. Roof "extremely excited," especially since the deal comes on the heels of Heafner's purchase, in May, of Nebraska's T.O. Haas Tire Co. That gave Heafner a Plains States distribution platform and connect-the-dots route from its infrastructure in the Southeast to its West Coast operations.
Heafner will add ATD's annual sales of about $100 million to its coffers which, last year, saw total revenues in excess of $1 billion. Comparatively, T.O. Haas produced sales of $104 million last year from its wholesale, retreading and retail operations.
An added bonus is that Heafner will gain the knowledge and expertise of ATD President Jim Matthews, a longtime tire industry veteran who will become president of Heafner's ATD Division and join the company's executive committee. At one time he was president of Merchant's, as well.
Merchant's CEO Michael Riggan described the sale of its wholesale division as a critical step in the company's mission to become "the preferred provider of tires and automotive services."
In a prepared statement, he said that Merchant's has tried for many years "to divide our resources and energies between the retail/commercial customer and independent tire dealers. This change will allow us to focus 100 percent of our attention on the retail/commercial customer and will allow us to aggressively grow and strengthen our retail business."
The company said it hopes to achieve that "through aggressive new store growth in existing markets, as well as in new geographically contiguous markets."
Heafner and Merchant's aren't strangers.
Mr. Roof told Tire Business the organizations have, for years, had "general business discussions whenever we ran into each other. We anticipated that after Mike Riggan's arrival they'd concentrate more on the retail side of their business. So (the sale of ATD) became a logical discussion for the two parties to have."
Heafner's growth has been methodical, but there still are pockets where it's not well represented—in Texas and in the industrial Midwest, for instance.
Until the ATD merger, "we really didn't have a northern presence and the platform from which to start consolidating the industry in that part of the country," Mr. Roof said, noting that Mr. Matthews "will be charged with expanding our geography and consolidating the industry in the north."
With a reputation steeped in wholesaling, Heafner has bolstered that empire over the past several years with the acquisitions of large wholesalers ITCO Tires & Products in the Southeast and, on the West Coast, Competition Parts Warehouse and California Tire. It entered the retail arena by purchasing Winston Tire in California.
A logical question to consider is where and how Heafner will continue to expand.
Mr. Roof said he doesn't foresee more buyouts this year, but added, "We still have to look pretty hard—now that we have a footprint in all four regions of the country—whether we continue down the acquisition trail" and fold in more regional distributors, "or start growing our own" by opening new distribution in so-called "greenfield" areas.
The latter choice offers the advantage of consistency.
Whenever the company buys a small local distributor, for instance, it faces having to tinker with an ingrained culture and approach to business that, Mr. Roof said, may not be conducive to the model Heafner believes "makes the most sense for the independent dealer."
Its distribution platforms in place, Heafner now can select the states and cities it wants to move into, he explained, "with the knowledge that we bring the independent dealer a continuity and consistency of service, programs and products that will be superior to any of the established competitors in the areas we select."
Nonetheless, he said the company needs to "take some consolidation time" in order to see that the transitions for its T.O. Haas and ATD divisions are going well. Requisite to that is getting Mr. Matthews and Randy Haas, president of Heafner's T.O. Haas Division, "involved in our overall strategic-type discussions...to look at what the industry really needs."
Right now, Mr. Roof continued, Heafner is concentrating on how it can best serve its dealers nationally. "And that's enough to keep us occupied. We still have a lot of things under development."
Gains and losses
One interesting wrinkle to the ATD acquisition is that the wholesaler belonged to American Car Care Centers Inc. (ACCC)—the nation's largest dealer marketing group and a Heafner competitor. To compound that twist, Mr. Matthews helped co-found ACCC when he headed Merchant's.
ATD had 93 ACCC dealerships that now will be supplied by Heafner.
Prior to the ATD sale, ACCC only needed 33 more dealerships to reach 1,000 nationwide, a goal it expected to reach by the end of next year.
"I'm not sure how ACCC's going to react. We're now in discussions with them," Mr. Roof said, without being more specific.
Asked how that whole scenario will play out, he laughed. "Obviously, we feel the talents Jim (Matthews) has in helping start ACCC will be useful to us...."
But undoubtedly Heafner will not join the ACCC program since Heafner plans to launch its own affiliated dealer program, called "AutoEdge," during the annual Automotive Aftermarket Industry Week trade shows in Las Vegas this fall.
It will provide to dealers such things as signage and credit card and warranty programs.
"I think programs like ACCC bring a lot of value to the dealer," Mr. Roof said. However, while ACCC is an affiliation of 19 distributor members who have a say in how that organization is run, he believes AutoEdge will have the advantage of being operated solely by Heafner.
That will help the company "much more quickly develop consistent programs we feel are best for independent dealers across the country without any geographic restrictions and concerns."
Mr. Roof said he would be "real disappointed if we don't reach 1,000 dealers in our first year." Thus, AutoEdge quickly would become the nation's largest dealer marketing program.
Winston, other goals
As the industry continues to consolidate—both on the wholesale and retail levels—how big can Heafner Tire Group get? And is an initial public offering around the corner?
Going public isn't an ultimate goal, Mr. Roof said, though it's certainly an avenue to capital the firm might need someday to continue growing. And Heafner is far from exhausting its growth into certain pieces of geography—including Texas, the Midwest and New England.
But another question Mr. Roof said company execs continually ponder is "how we can best serve independent dealers."
In addition to wholesaling and retailing, Heafner is big in areas such as supplying shop and tire equipment, custom wheels and certain lines of parts.
"Should we try to be a full-line supplier to dealers in everything they need to conduct their business," he asked, "so that when you add into the programs all the marketing, advertising, warrantees, financial services and training systems, we really can best help them to compete today?"
Each Heafner division will be looking at that and other strategic questions, he said.
The company has, for example, begun offering its Winston brand tires nationwide. However, taking that retail chain national, Mr. Roof said, is not in the cards immediately. It probably would be accomplished more easily by acquiring other retail chains rather than building stores from scratch.
He knows he has, in the persons of Mr. Matthews, Mr. Haas and other Heafner executives, individuals who, given a "clean sheet of paper," dream of having the chance to do what he calls "blue sky." That is, define and map out company goals and distribution on a national scale, no holds barred.
"That excites them," he said, "and overcomes a lot of resistance to change."