Rochester, NY-based Monro Muffler Brake has signed a definitive agreement to acquire 10 Curry’s Auto Service shops in the Washington DC metropolitan area, enabling Monro to fill in an existing market. Financial terms of the transaction have not been disclosed.
Annual sales for these stores are roughly $18 million, according to Monro, comprised of approximately 80 percent auto service and 20 percent tires. This high mix of service sales would help Monro offset the pressure the company has been seeing from a sales mix shift to lower-margin tires.
The shops are to be co-branded as Curry’s/Mr. Tire. Monro plans to retain all store-level employees.
Closing is expected to occur in mid-August. The deal would give Monro a total of 37 stores in the Washington, DC market.
More acquisitions are likely. John Van Heel, president and CEO of Monro, disclosed on a July 25 conference call that his company has seven signed non-disclosure agreements (NDAs). Five are within Monro’s footprint and two are in contiguous markets, with store chains ranging in size from five to 40 locations.
“Based on the current transaction, the current macro environment and our existing NDAs, we think the acquisition environment can heat up further in the second half of the year,” Van Heel told analysts on the call. “We have plenty of liquidity, combined with strong cash flow to complete these deals and remain very disciplined on the prices we pay with 7 X to 7.5X EBITDA — or about 80 percent of sales — being our key metric. Importantly, we continue to compete only with the sellers’ expectations in these deals.”
Van Heel has said that he sees attractive acquisition opportunities in the marketplace, created by the challenging operating environment, and that Monro will continue to pursue these candidates in a disciplined manner.
BB&T Capital Markets pointed out in a recent report that acquisitions remain key to Monro’s growth. “While weak consumer demand has impacted comp-sales growth, top-line expansion continues to be driven by weaker market participants capitulating in the face of industry-wide softness,” wrote BB&T analysts Bret Jordan and David Kelley.
They added later in the note: “Given Monro’s low borrowing costs and significant purchasing and distribution scale, we expect continued consolidation-driven top-line growth in the second half of 2014, while the majority of current-year earnings expansion comes from last year’s deal flow (assuming comps remain stagnant).” — Marc Vincent
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