Joe Tomarchio Jr. is a special adviser for acquisitions to the CEO of Monro Inc. In his 18 years with Monro, he’s been an executive vice president in charge of acquisitions, tire sourcing and marketing and between 2006 and 2014 he ran all store operations for the 1,100 locations and more than 7,000 employees Monro had at the time.

Joe is the original “Mr. Tire” in that he co- founded Mr. Tire in 1970 with his brother, Fred, and sold it to Monro in 2004. Joe has been involved in more than 60 sizable acquisitions over the past 18 years and has been part of the team that has seen Monro triple in size over that same time period.

There is no one with more experience with acquisitions in the tire and service business, so we interviewed Joe to learn more about him and Monro’s ideal current targets.

McGregor: Mr. Tire had 26 stores doing $52 million in revenue back in 2004 and had an amazing per store average back then. What was going on with Monro at the time? Had they been thinking, “We’ve got to expand beyond mufflers?” Is that why they acquired Mr. Tire?

Tomarchio: Monro recognized that the exhaust business was peaking with the advent of stainless steel. Prior to stainless steel, in the Northeast — with all the salt on the roads — you’d be replacing exhaust systems every two or three years. But with the advent of stainless steel, they last 10-plus years.

The CEO of Monro at the time was smart to realize that he’d better take Monro in a different direction by getting into the tire business and getting into underhood because Monro was highly focused on undercar.

McGregor: What was behind your decision to sell Mr. Tire to Monro?

Tomarchio: We looked at our situation and figured that we had to get substantially larger, or someone could come into our market and potentially eat our lunch. Although we had number one market share in the Baltimore, Md., market at the time, we were caught in that space of being too big to think small, too small to think big.

To really grow exponentially, we would have had to leverage our balance sheet up and take a risk that we just weren’t willing to take at that time.

Our thought process was that we didn’t want to be worse off in 10 years from where we were at that time. We’d been through the years of high inflation, longshoreman strikes, trucking strikes, rubber company strikes, tire shortages, the Gulf War and two oil embargoes. I mean my brother and I had seen it all

Although we persevered through all that, my brother felt strongly we could do better by focusing on the real estate business. That is the main reason why we sold the business and kept the real estate.

We thought that there were going to be two kinds of tire dealers in the future — the small independents that had probably five stores or less, who had that personal touch with employees and customers, and the mega dealers. The guys in the middle were going to get hurt or cramped because they can’t keep the personal touch and they don’t have the leverage of a Monro, a Firestone or a TBC Corp. on a lot of different levels.

I’m talking about logistics, marketing, management, access to capital, training, and spending

the kind of money that you need to spend to stay on top of the new technologies that are coming into the marketplace.

McGregor: Did you know at that time that Monro was looking to grow as fast as it has?

Tomarchio: When Monro was recruiting me, they made it very clear that they were going to have a thousand stores in the foreseeable future. I could see how this could happen.

Monro has always had a strong balance sheet and being a publicly traded company, it had continual access to capital.

So now I’m at Monro, I’ve got this strong balance sheet behind me and I have every one of the CEOs I’ve worked with saying, “Joe, use your resources, your contacts (and) your knowledge of the industry to help us grow exponentially.”

I had the ability — and still do, for the most part — to pick up a phone and get somebody on the phone.

McGregor: What are some of the more notable transactions that you led for Monro?

Tomarchio: Oh, I’ve been involved in some great ones. First, because of my tenure in the business, a lot of dealers we acquired were friends and business associates of mine through decades of being in the business and sitting on different manufacturers’ advisory councils or going on dealer trips and to conventions. So, I had a lot of contacts.

Bob Dabrowski at Tire Warehouse was a great one, up in New England (with) 40 some locations. He’s still a friend of mine. Ken Towery Tire, God bless his soul, was a great acquisition. Chris Jones at Tire Barn lives about three miles from me here in Naples, Fla. Ron Kramer down in Tidewater, Va., had 21, really nice Goodyear stores.

The Mitsos family at Mountain View Tire in California are great operators (and) Allen Tire in the Los Angeles area, as well. Dan and Diane Hennelly at Tire Choice in Florida, Lewis Wexler at Free Service Tire in Tennessee, Skip Lightfoot’s Skip’s Tire in the (San Francisco) Bay Area — a lot of great ones.

McGregor: What is Monro currently looking for in acquisitions? What types of businesses and geographies are top of mind for you or most attractive?

Tomarchio: We are highly focused on acquiring good retail operations. They could be 100% service, or they could be 100% tires or any combination in between. Any place that fits our model in the U.S. we’re interested in, but we are laser-focused right now on the South and southwestern United States, looking for platforms in Texas, Alabama, Arizona and New Mexico, as well as expanding our existing footprints in North Carolina, Georgia and Florida.

We like good retailers that have invested in their business and have a strong track record of profitability. We like acquiring a good business with a great customer base, a great reputation and quality employees.

Quality people take care of the number one asset, which is the customer base. We honor all the tenure of the employees that are coming on board. If they’re on their benefits, they transfer over to us — no waiting.

I think we have 8,400 employees now and the lion’s share of them are from acquisitions. Our track record speaks for itself. We take care of our people. And I’ve got to tell you, our new CEO, Mike Broderick, is a people person. And he is out in the stores quite a bit because he understands how important that is. Under Mike Broderick, we’re upgrading our stores, really focusing on the human capital and making sure our stores are staffed properly. We’re in a great position with a great balance sheet to take it forward.

McGregor: Any advice for tire dealers in terms of what they should do to prepare their businesses before a sale to a company like Monro?

Tomarchio: The one overwhelming thing I see is that tire dealers don’t collect for the value of their service, their convenience, and their trustworthiness. They just don’t charge enough.

They think they must be the lowest price. And I see that when they get hit with a price increase and they hesitate to pass the price increase along.

You do need to be competitive, but the number one thing I would tell people is raise your prices. Number two is that a lot of tire dealers defer investments in equipment, technology and building maintenance. We’re then faced with the dilemma of “What’s it going to cost us to bring these into the 21st century?” Sometimes the view’s not worth the climb and we pass on those businesses.

And the third thing is if you’re looking to sell your business, you need to take a year — preferably two — and separate church and state. You can’t run your personal affairs out of your business. Separate them so that you have a clear financial statement that you can (use to) quantify the expenses that are related directly to the business from the expenses that are not inherent to running the business.

McGregor: So, what’s Monro’s current philosophy regarding keeping the name of some of these tire dealerships versus changing them to Mr. Tire, Tire Choice or Monro Auto Service & Tire Centers?

Tomarchio: If you buy a great company that has a great name the last thing you want to do is go in there and just turn the barrel upside down. There’s a lot of changes going on integrating an acquisition, anyway.

Changing the name of a company that has a great name in a market we’re not currently in is not a priority at first. If we have a lot of stores in an area like the Northeast and we acquire somebody, we’re going to change the name to our brand because then we get the leverage of the marketing.

But to go out into California and just arbitrarily change the name to one of ours — there’s no benefit. Mountain View Tire — talk about a great brand. Same thing with Allen Tire. Great brands — they have great customer bases (and) great employees. Now with that being said, we are narrowing down (our) brands — like, there’s no longer the Tread Quarters brand. We’ve done away with that.

McGregor: Let’s talk about market activity right now. It’s never been as active as it is today. What do you attribute that to? What’s changed that there’s just so much deal-making activity?

Tomarchio: I think it’s several things. One of them is that interest rates are very low, so money is cheap. Then you have private equity firms and hedge funds that just have billions of dollars of cash to invest. If they don’t use it, they lose it.

And our industry, even though it’s consolidated quite a bit in the last, say, 20 years, is still a very fragmented business that can be consolidated. This is where I think we have the advantage because Monro has been around for 65 years, and we buy and hold onto businesses.

Private equity’s modus operandi is to sell things off in three to seven years, with five years being the sweet spot. You would be hard-pressed to find a private equity firm entering the space that has been holding for seven years or more.

Also, Monro is a AAA-rated credit tenant. A lot of the tire dealers who are selling their companies want to keep the real estate. If private equity is buying the business, who’s going to be operating that lease five to seven years from now? So that’s where Monro has an advantage.

McGregor: Back to your experience as a tire sourcing guy, how do you think the relationship has changed between tire retailers and manufacturers over the years?

Tomarchio: Well, it’s changed immensely. Back in the ‘70s and ‘80s, when my brother and I were buying tires, there were more independent domestic rubber companies. The deals that were flying and the terms that you (could) get were just crazy. I mean, we had floor plans which were basically consignments from the rubber companies. And that really was one of the catalysts that helped us grow. So, we put our money into equipment and new locations.

In return, we stayed as loyal as we possibly could to these manufacturers for as long as we could. That loyalty has eroded between retailers and manufacturers — no question.

McGregor: What’s the biggest impact that COVID-19 has had on the industry, from your viewpoint?

Tomarchio: I always try to look for the silver lining, but to those who have lost loved ones, my heart goes out to you. But I’d tell you that from a business perspective, we all found that we could do more with less. Maybe the payroll as a percentage of sales has come down. Dealers have shrunken store hours (and) in some cases, days. I’m running across several very well-run companies that have closed Saturdays, which you would never have dreamed of before. Companies have not reopened on Sundays. So, it’s made businesspeople, in general, more cost-conscious, as opposed to revenue-driven.

I’ve seen companies spend a little less in marketing and spend it more efficiently.

Across the board, businesses are doing better. And I think the level of cleanliness of some of the stores has improved. Those are some of the good things.

Now on the other side, lots of people have said, “How much more of this is coming? Is it time for me to exit?”

My philosophy is none of us are getting out of this life alive. After you have your wants, needs and desires covered, as you become older, time is more important than the money. And then as you become even older yet, good health is number one and time and money take second and third place.

McGregor: So, you’re thinking that with COVID-19, a lot of business owners are reassessing their exit timing?

Tomarchio: They absolutely are reassessing. I’ve heard these conversations — “Joe, I had this happen and you know what? You’ve been contacting me for years. I’m ready to talk.”

And I think that’s what COVID-19 has done and why you’re seeing so many acquisitions recently.

Valuations go hand in glove with the low interest rates and the just prodigious amount of capital that’s out there. The stock market’s doing well (and) the economy’s doing well. (There are) trillions of dollars in consumers’ bank accounts still.

But this cycle never stays way up here. It’s a vicious cycle when the market turns down. When you’re at the top, you think it’s going to last forever. It doesn’t.

This article was previously published on Modern Tire Dealer.