A friend sent me an article about private equity consolidating segments of the automotive market, specifically tires and service centers. CCAW Automotive Group operated in this market, so I know it well.
I’m not surprised that private equity is targeting this market, because it’s fragmented and inefficient and requires significant capital to hold inventory. Rising interest rates are likely pressuring profitability of smaller players. This makes the market attractive to private equity funds looking to execute a roll-up strategy. In my opinion, it’s really the only viable strategy for this mature industry. Growth is slow (probably 3%–5% annually), so growing organically is hard because you mostly have to take customers from someone else. Buying smaller players and integrating them into a larger organization so economies of scale can be leveraged is a good strategy.
I wouldn’t be surprised to see private equity consolidate parts of this industry and then sell to a large upstream player (manufacturer, distributer, etc.) who could benefit strategically and financially. Then again, the consolidated segments could be taken public if market conditions are favorable. I’m curious to see how this plays out and hope the end result is a better experience for consumers.