BURNSVILLE, Minn.—Tire industry titans Larry Morgan and Tom Gegax have agreed to merge their dealerships—Morgan Tire & Auto Inc. and Team Tires Plus Ltd.—and form the nation's newest tire retailing empire.
The two companies combined will operate approximately 540 stores, second only to Penske Auto Centers, according to Tire Business' rankings of North America's independent tire dealerships. In terms of sales, Morgan Tire will become a $745 million firm, moving to a third-place ranking in North America behind Discount Tire Co. and Les Schwab Tire Centers Inc.
Clearwater, Fla.-based Morgan Tire, which already operates 400+ stores in 15 states and projects its 2000 sales to reach $525 million, gains a solid presence in nine midwestern states where it previously had no outlets.
The company does business as Olson Tire, Wheel Works, Avellino's Tire, Hibdon Tire Centers and Michel Tire, but all those stores gradually will convert to the Tires Plus banner within the next few years, Mr. Morgan said. The corporate name will remain.
Morgan Tire agreed to purchase Burnsville-based Tires Plus July 6. The transaction, terms of which were undisclosed, is expected to close within 30 days.
Tires Plus operates 140 stores—90 company-owned and 50 franchises, Mr. Gegax said. The firm projected its 2000 sales to reach $220 million.
The combined entity expects to sell 6.5 million tires in 2000 and will employ about 6,000, Mr. Morgan said.
Most current employees are expected to remain, while those workers whose positions overlap will be offered other opportunities within the new company or severance pay, a Tires Plus spokesman said.
The deal unites two longtime friends—Messrs. Morgan and Gegax—both of whom had a common vision of growing their dealerships to 1,000 stores. Now they've chosen to achieve that goal together.
Mr. Gegax will become chairman of the new organization and remain in the Tires Plus office in Burnsville. Mr. Morgan will work out of Clearwater as CEO. Tires Plus' main distribution center will remain in Burnsville indefinitely, the Tires Plus spokesman said.
Don Gullett, who with Mr. Gegax founded Tires Plus 25 years ago, will retire after the transition period. Larry Brandt, current Tires Plus president, will continue in that position for the combined firm and remain in Burnsville.
Mr. Morgan told Tire Business he and Mr. Gegax have talked on and off about merging since they helped found the Tire Alliance Groupe—the nation's largest retail tire-buying cooperative—several years ago. He said they wanted to be a part of the industry's ongoing consolidation and, for several years, have concentrated on rapidly growing their businesses.
"As the industry continues to consolidate, we easily see that, geographically, putting our companies together was a perfect fit," Mr. Morgan said. "We've also known for many years that, philosophically, we were very compatible. Tom's always put ultra-emphasis on the image of his stores, on the quality of his people and on the care of his customers, which are really the same values we have."
Mr. Gegax is known for managing Tires Plus with the philosophy that customers are "guests," employees are "teammates" and managers are "coaches." Mr. Morgan said he will continue that concept. As chairman and "executive coach" of Morgan Tire, Mr. Gegax will be involved in strategic planning, financial budgeting and developing marketing strategies and concepts, said Mr. Morgan, who will become "head coach."
Mr. Gegax said he has wrestled for some time with the decision whether to sell his dealership or continue to buy others. Neither he nor Mr. Gullet have children interested in the business, so joining Mr. Morgan seemed to be the best choice.
"The more I saw how successfully and honorably Larry did this (integrate newly acquired companies), the more I said `Hey, I like that,'|" Mr. Gegax explained. "As we looked at our options, it was either go public, merge or get a financial partner. As we examined those options, it was a clear choice on what we wanted to do."
Together, the two dealers' goal is to operate 1,000 stores nationwide, Mr. Morgan said. He expects the dealership to be a $1 billion company by 2004, if not sooner, and will continue Tires Plus' franchise program.
He declined to discuss future acquisition plans, but said he sees growth opportunities in the Northwest and Southwest.
Besides similarities in goals and operations, the two firms also have roughly the same business mix, Mr. Morgan said, with tire sales constituting 60 percent of Morgan Tire's sales and 65 percent of Tires Plus' sales.
However, the firms do differ in tire brand lineups. Tires Plus is a Michelin Americas Small Tires dealership, while Morgan Tire primarily carries Bridgestone/Firestone products. Last year, Michelin North America Inc. ceased supplying Morgan Tire directly because Mr. Morgan wouldn't commit to buying at least 51 percent of his tires from MAST, and Mr. Morgan said he wasn't sure if the brand lineup for the combined company would change.
"We'd like to do business with (MAST) if they care to do business with us," he said. "It's kind of early to tell what will be done there, but there is no doubt that there will be more Bridgestone/Firestone tires sold (at Tires Plus) than in the recent past."
The Tires Plus deal is by far Morgan Tire's largest purchase and follows a series of acquisitions by the firm. It ventured outside of Florida in 1997 when it acquired 28-store Jim Martin Tire and then six stores in Reno, Nev., from Parnelli Jones Inc.
In 1998, Morgan Tire bought Oklahoma-based Hibdon Tire Centers—a 14-store chain—and Cincinnati-based Michel Tire Co., which operated 58 retail outlets in Ohio, Kentucky, Indiana, Tennessee and Florida.
Morgan Tire in 1999 bought Avellino's Tire & Auto Service Centers—a Philadelphia company with 22 retail stores—and California-based Wheel Works, a 24-outlet chain.
Most recently, Morgan Tire agreed to share outlets with aftermarket parts and accessories retailer CSK Auto Inc. in the San Francisco Bay Area.
The company will keep its divisional offices in Ohio, Pennsylvania, Oklahoma and California, but will consolidate its marketing into a central, national focus, Mr. Morgan said.
Tires Plus also has expanded aggressively in recent years, acquiring seven RPJ Tire Co. outlets in 1997 and Nebraska-based Tires Inc.'s 13 stores in 1998. Tires Plus also has grown by continually adding franchises.