The tire and auto repair industry is experiencing a wave of consolidation as shop owners consider mergers, acquisitions, and succession planning. What steps should business owners take to maximize the value of their business, whether they plan to sell or grow?

According to Giorgio Andonian, Managing Director at FOCUS Investment Banking, preparation is key to achieving the best outcome. Business owners should start by evaluating their financial structure, understanding fair market rent, and optimizing operations before considering a sale. Giorgio emphasizes that having a clear succession plan, even if an immediate sale isn’t in the works, can significantly impact long-term profitability and stability. Additionally, for those looking to expand rather than exit, securing the right capital and investment partners can help fuel growth while maintaining control over their business.

On this episode of Gain Traction, Mike Edge chats with Giorgio about market trends in the tire industry, how to prepare for an acquisition, and the role of private equity in fueling business growth. They also discuss why many shop owners overlook key financial details, such as fair market rent, and how proper planning can prevent costly mistakes.

Mike Edge: One shop could be struggling while another’s overwhelmed with customers. By using location specific strategies, you can fine tune your approach to give each shop exactly what it needs when it needs it. All right, so my past guest shout out for today is Jonathan Bemis, the 2024 Apex Technician of the Year who is employed with VIP Tire and Service in the Northeast. If you haven’t listened to it’s a great interview. Jonathan’s a great guy and I’m glad we had him on the, the podcast. He’s, he’s just a remarkable guy, Mark, remarkable career and what he’s accomplished in such a short period of time. So you can check it out at gain traction podcast.com all right, so Giorgio, welcome back.

Giorgio Andonian: Thank you, thank you. Happy to be back, Mike.

Mike Edge: Well, you know, we talk periodically and it’s always interesting and I enjoy the conversations, but I felt like it was important to have you back because you provide a service to the industry. And I know you know, and a lot of people that know the focus name know you guys do big, you know, mergers and acquisitions, help people sell their stores, etc. But what intrigued me more than anything is that, you know, you also go to an owner or to a store and just help them get everything in order whether they’re going to sell or not. They need that just to run their business more efficiently and effectively. But also, hey, if you do decide that you want to sell in five, 10 years, at least you’re heading in the right direction.

Giorgio Andonian: Right? Yeah, that’s something. We’re a full service firm, so we’ll off. I’ll start off with that. We obviously do sell side work which is probably about 65% of what we do. We also do buy side for some larger entities and now we’re really making a push on capital raises and the capital markets as well. But I’ll take a step back and say a lot of the services we offer are because we know the industries that we’re in. I’m a tire guy through and through. We’ve talked about that. I know I can look at a P and L right off the bat and highlight a few things that I just stick out because we’ve done it both on the M and A side and the operational side.

So it gives us an opportunity to meet with a business owner who is probably not interested in selling at this time, but we can have a conversation about shop and what’s working and what’s not. And I enjoy that more than anything. Just it’s, I did it for so many years on the operational side and it’s always fun to tinker. So as a service we definitely offer that. We’ll come in, we’ll meet once, twice, regularly, whatever is necessary. Run through your operation, find some low hanging fruit, give you some guidance on where to you can possibly improve. It’s always good just to have a second set of eyes. When you’re stuck in the same thing day in, day out, it can get a little bit mundane and you stop seeing certain small things.

Mike Edge: No, and I think you say the best there, that second set of eyes always helps out. I mean it’s just like having a coach, counselor, whatever you want to call it, just somebody looking over your shoulder to say, hey, what about this detail here, what about line item here, etc. And, and it is something that becomes mundane. I think in all our lives, whatever we do, you just, you get going down the tracks, you’ve got the main things that you’re looking at and you might overlook certain other things that just slowly add up or.

Giorgio Andonian: Mike, one thing that really doesn’t come up often, and it should with a lot of these business owners is what’s your structure like? A lot of these business owners have an older company been down for 40, 50 years. There’s C Corp. Well, have you talked to your CPA about that? What does that look like when you have the next step of, you know, your journey? Are you going to sell? Well, selling as a C Corp in our industry is a lot more complicated than selling it as an asset. S Corp as an asset sale. There’s a lot of Capital gains and tax advisory that needs to go into it. While we don’t do tax advisory, we have a general understanding of it and can recommend others. But also just suggest to go through those structures.

Talk with, we’ll work hand in hand with CPAs and go through different options. The preparation takes years. A lot of times we’ll see it three months before closing and it’s just, it’s too late back by then.

So we’d like to spend some time with folks and talk about estates and trusts and taxes and corporate structures. It goes well beyond, just here’s the highest price that we’re trying to get you in and get you out.

Mike Edge: And that’s what I was saying. Like, I think that service that you guys provide, it’s a warm, it’s a, it’s just a warm way to get started in the process without feeling like you’re rushed, feeling any pressure. It’s just, it takes a lot off. And you know, I, I’m, I, I’ve met a lot of these shop owners through the years and I know you have as well. And they don’t have an exit strategy and you don’t have to necessarily have the exit in mind, but you have to have some form of an end game in mind, like let’s say over by a bus tomorrow, what happens, you know, and it doesn’t have to be that you’re selling. It just has to be, you have to have some form of succession plan. And I think it’s so important.

It’s just like, you know, I got a brother that’s in the insurance world. Well, I mean, you know, once you start having kids, you better have life insurance. I mean, you’ve got to have, you know, and I mean, it’s just one of those things where you got to have certain things. It’s just for peace of mind. Right. And I think what you guys do, and this is why I was excited about having you back on the podcast, is just that, you know, you had mentioned to me that, you know, that’s one of the things that you guys offer is that, hey, we just go in and we will point them in the right direction. We’ll take care of, you know, we’ll get things going and it’s a nominal fee.

I mean, it’s just in, in comparison to what, you know, what they could get themselves into or some type of long term relationship. It doesn’t have to be that it’s just a, a project, basically. A project. Yeah.

Giorgio Andonian: That’s exactly how we do it. We’re just trying to create relationships and help business owners in the long run. It’s part of the services that we offer. We have can probably point to a handful of scenarios where we did something like this with a couple of tire dealers and told them, you’re not ready. Let’s go back, let’s dig through your financials, let’s fix this. Come back in six months, 12 months, two years, and you’d be surprised how much more they can get. Once you go through that analysis, clean up the things that we know the buyers are looking for or investors. If you’re not fully exiting, you can do that as well. And we can prepare the company or guide you in the way to be able to maximize your goal. It may not be the full exit 100 retirement.

There are other avenues you can take and that’s what these exercises do, is help keep the options guided. And really the big thing we always say is you have one shot at this. Make it the right, the best way you can do it, take the right approach and maximize your opportunity.

Mike Edge: Well, it’s, you know, I had a good experience with you guys. I mean, I recommended, you know, that client that sold his two stores to you guys. And you know, he followed up with me without me really having even inquiring. He said I had a great experience. Thanks.

Giorgio Andonian: You know, they were great to work with. And we believe that were able to pay our fee and then some with the relationship that we established there. So.

Mike Edge: Well, and it didn’t really, I mean, in the whole scheme of things, it really didn’t take that long. I think you guys did that under a year.

Giorgio Andonian: Well, well under a year. Really the biggest challenge for us at that point was the buyers were just trying to get their ducks in a row.

Mike Edge: Yeah.

Giorgio Andonian: But if someone’s prepared and ready, this could be a three to six month process.

The thing right now is there’s just so much activity, there’s so much interest that you, it doesn’t really show up on, you know, the entire business journals and so on. No calls day in, day out with another private equity group or another investor that’s looking to get into this. And everyone is just happy with the industry. It’s a secure industry, it’s resistant, it’s profitable when operated well. And it’s just, the influx is incredible, especially into 25.

Mike Edge: Well. And we get, I mean, you know, our parent Company tread. We get, we get inquiries. I mean, like, you know, how you guys do, you know, somebody we could talk to here or there. And so it does matter and doesn’t mean they always act on it. Some of them just want the information and then they, I think they get scared to make the call or whatever you want to call it. Yep. Just, you know, they just know, okay, hey, I got another name or whatever. But, you know, another side that you and I have talked about briefly was on the PE side. You know, you do have some guys that. And I think this is, you know, another obviously strength that you guys offer. But hey, you don’t want to get out of your business, but you want to grow it.

And you guys can connect them to private equity partners.

Giorgio Andonian: Yeah. So capital markets is an area that we’re really pushing, and this is raising money for a specific goal in mind. So let’s say you have five stores or 10 stores and you want to double that. Well, I need $15 million to be able to buy another 10, 15, 20 stores. It’s hard to come about that type of cash. What we have is a network and a partners who help us find a combination of debt and equity. Whichever one works to help achieve that goal. It could be a combination with a private equity group and a lender or just a lender, depending on the financial. So we kind of dig in to the operation and give some guidance that way and also understand what the owner is looking for. Sometimes you’re only going to give up 30, 40% of your business.

You’re still going to be a majority owner. You’ll bring in an equity partner, bring on some debt. Now you have $20 million and let’s go and make this the next thing. Grow it, sell it to the next party. Yeah, we’ve been getting a lot of those conversations with some of the. They’re not huge regionals, but they have a nice collection of stores and they’re going, I’m not ready to sell, but I would like to grow the. And make this a bigger platform and then sell in five, seven years from now.

Mike Edge: Well, and I think of it like, it’s almost like you guys could act as a dating service. Right. I mean, I mean, seriously. I mean, put it in perspective because you’re really, you know, these guys don’t know who to talk to, you know, and then. And, and no one necessarily trusts anybody because, you know, I. They’re all going to hear the same thing. Everybody uses the same lingo but then how do I know that you know your stuff or that you’re going to be the right partner etc, but with you guys acting as that filter and kind of introducing the right partners based on what you know about personalities.

Giorgio Andonian: I don’t know. It’s funny you mentioned, that’s exactly what I was thinking about is value is one thing, right? There’s total purchase price and I want X dollars but there’s so much more that goes into it and luckily we’ve been fortunate enough to work with pretty much all the buyers out there and you’ll know if someone is going to be a fit with this group or not. So we have that experience and especially if you’re rolling equity, can you work with these people? Can this person be your boss? Are you comfortable with that? What about the other terms? There’s so much more than just the price. Like I said, the structure, C Corp. S corp. Asset sale, stock sale, working capital, non competes. We know what the market is because we’re doing these deals.

So when you try and do a direct source deal with private equity or a strategic that comes directly to you, listen, they’re going to be nice. They’re all great people but these are professional investors, right?

And they know that they will do the best that they can for themselves. Our job is to keep everybody honest and level the playing field for the seller to make sure that it’s not David versus Goliath.

Mike Edge: I know a group that went through something like this, not directly with you guys, but they, their experience was they took on a considerable amount of time of interviewing a lot of different private equity groups and I think they had a partner like you guys but ultimately it worked out well because they said here’s the grounds that we’re willing to play on, here’s what we’re not willing to do. And a lot of it had to do about their employees, taking care of their employees. They did not want to get in a situation where it shortchanged their employees. They couldn’t do the benefits that they used to, you know, that they were accustomed to doing or let’s say the entertainments that they did for employees or whatever.

They didn’t want to cut the, any of the frills necessarily, kept the good relationships, kept, you know, kept people there for 30, 40 years, etc. And, and that’s what they got, that type of deal. But I think that’s what you guys bring to the table there that hey, if you want to grow, we can help you find that right partner. A lot faster than you can by yourself and then allow you to interview a few people or whatever. But we’re going to put you with people that you know, like minded, you’re going to get along with. You got the same objectives. It’s just a matter of the numbers working out now.

Giorgio Andonian: Exactly. Yeah, you hit the nail on the head. It’s just there’s so much out there and you know, like I said, they’re all good people. But we know who does what. Especially close because sellers call us, they go, hey, I heard they did this with. Or they’re doing this with my guys and my guys are calling me and they promised they wouldn’t do this. And so, you know, it happens.

So we know those relationships. We have it, we can kind of guide as well as people are talking. So we’re always a sounding board as well.

Mike Edge: That’s awesome.

Giorgio Andonian: I’m reaching out to the tire owner, tire business owners and just saying, let’s just chat. I’m not here to solicit, I’m just here to provide knowledge, tell you what’s going on. You’re going to get these calls. This is what you should say or what you could do. Hey, you know, just, I’m an industry guy so I don’t.

Mike Edge: Well, and it’s fun. I mean like for you, like you said you love doing it. So it’s, if it’s fun then let’s, let’s just win together. I mean, and it’s kind of that, you know, it comes back to that whole adage too of them getting to know you. But no, like, and trust, I mean, you know, you trust people that you like and you like people that you know, you’ve gotten to know. So I mean it just, it takes, some of, it takes a little time. Right. But you guys from the buyer side or the private equity side, you already got kind of a pool of people that you know exists out there that are, you know, swimming and looking for the right partners. And so meeting the right seller is just as part of that formula or that step.

Giorgio Andonian: Like you mentioned earlier, we’re matchmakers in that sense and we’ll find your desires and we’ll hopefully find the right fit for you. That’s what we’re trying to do. And again, if we need to sharpen up your hair or your kind of outfits, we can help do that too. Prior to.

Mike Edge: Yeah, well, I mean it can be as simple as just, you know, making visits to the stores and saying, hey, look I’m just gonna give you a couple pieces of advice, but the best selling stores we see do these five steps that.

Giorgio Andonian: Yeah, I love a site visit. Walk in the, walk in the shop. It’s just second nature to me. I know I look at certain things that I looked at when I was looking to buy a shop and you know, are the floors clean, look at the ceiling, the roofs, small things that you really wouldn’t think about. But these buyers are looking at when they’re, they want to see how are you running your shop? It’s not just the sales, but what kind of operation is this? Are you invested in the company and so on.

Mike Edge: What is the. Just thinking on behalf of the seller out there, let’s say a store owner right now. What is the most common thing that gets overlooked that you could give away in regards to free information that you need to do like right now, like.

Giorgio Andonian: Fair Market Rent, Number one, many of the business owners, they own the property and they pay themselves a rent. Well, the question is, are you comfortable receiving this amount for the next 10 years? As a landlord most often say, well, no, that’s not enough. Okay, so you need to adjust your rent. And then from there that’s where the opportunities come in to see, well, how can we improve these operations? Because now that the rent say doubled to Fair Market, well, we’re not as profitable. Great. So now we’ll come in, we’ll help you identify the areas that we have seen in the past that we’ve guided people and how to fix that and come out more profitable. And. But that’s the first one that always.

Mike Edge: Man, that’s so funny. I mean you said that with such, you said that so fast and with such confidence. I’m. I. Yes. Okay, that take your word for it. So Fair Market Rent. And I can see that being the challenge it is.

Giorgio Andonian: You know, I’ve seen companies charging $2,000 a month. They’re just paying their mortgage or they’re on that. That’s. It’s not enough. You were an investor. If you were selling this as a just a real estate play, you would want that to be 4,000, 5,000amonth. Well, that’s another 20, 30, $40,000 per location in negative to the bottom line. So how do we make that up and then some. That’s what we’ll guide you through. But yeah, it’s very common.

Mike Edge: Do. One more question. Do most people that enter, let’s say the purchase side, do they want the real estate or do they that’s what’s.

Giorgio Andonian: Beautiful with all the different buyers. Right now, it’s dealer’s choice if you want to sell it. There are buyers out there that would. They have a real estate arm and they are interested in buying the one that you recommended to us. Yeah, they bought the real. They want.

Mike Edge: Well, and he wanted out of everything. He was ready. Yeah.

Giorgio Andonian: Right. And so, you know, we helped him accomplish that. Some others were just interested in the business, but the seller didn’t want that, so we moved on from them.

The last deal that we just did with LE Schwab, Les Schwab is a great buyer, by the way. Just to give them a shout out. Very honest and easy to work with. But they’re wide open. Their preference is to buy the real estate, but they don’t have to. Yeah, they’ll come up with a long term lease at very fair pricing and lock you in at a, you know, now you have a national tenant in there in that property value just skyrocketed. You could sell it after or you could sell it during. There’s so many ways that you can get flexible. Those are the guidance steps that we kind of provide during the process.

Mike Edge: That’s great stuff. Well, Giorgio, I can’t thank you enough for being back on the podcast. It’s been awesome.

Giorgio Andonian: I love it anytime.

Mike Edge: Yeah, well, I appreciate it and it’s always good seeing you and having these discussions. I think the audience got a really good dose of things to think about. Oh, real quick. If anybody wants to get in touch with you, what’s the easiest way?

Previously published on Gain Traction.