How and When To Sell Your Auto Shop With Michael McGregor

Episode 51

Michael McGregor

Focus Investment Banking

Michael McGregor is Managing Director at Focus Investment Banking. His experience includes fifteen years of advising on business transfers, capital raises, and management buyouts for middle-market businesses. He has been a founder or co-founder of three automotive-related businesses. Michael is the author of the book Buy, Build, Fix, Sell, which helps tire and service dealers build better businesses and get maximum value when they decide to sell.

In this episode…

If you own a tire and auto repair shop and are planning to retire, have you thought about a succession plan? Are you thinking about selling the business? There are often lots of matters to get in order before selling, which shouldn’t be overlooked. What’s your exit strategy? Check out this episode of Gain Traction for some valuable advice!

Many tire and auto repair shop owners plan to sell their shop when they’re about to retire, but many don’t realize everything they need to do to make it profitable. According to Michael McGregor, author of Buy, Build, Fix, Sell, when planning to sell, shop owners need to make sure their shops are maximally profitable. This includes documenting expenses and ensuring their pricing is right to earn a reasonable profit.

In this episode of Gain Traction, Mike Edge sits down with Michael to discuss the important matters that should be addressed before tire and auto repair shop owners consider selling their businesses. They also discuss the importance of marketing the business, how much of the budget should be dedicated to marketing, and the best methods to reach the right customers. Michael says a shop’s clean and updated appearance is a big part of marketing. Don’t miss it!

Here’s a glimpse of what you’ll learn:

Michael McGregor shares how he broke into the automotive industry by selling coupons door-to-door
The number one thing prospective tire shop sellers should focus on
Where tire dealers should be spending their marketing dollars
What made Michael decide to write Buy, Build, Fix, Sell
The career milestone Michael is most proud of
Why the Grateful Dead is Michael’s favorite rock band

Resources mentioned in this episode:

Transcription

Announcer:

Welcome to the Gain Traction Podcast, where we feature top automotive entrepreneurs and experts and share their inspiring stories. Now let’s get started with the show.

Mike Edge:

Welcome to the Gain Traction Podcast. Mike Edge here. I am the host of Gain Traction, where I talk with top automotive business leaders about their personal journey and experiences in the tire and auto repair industry. Today, I’d like to give a quick shout-out to a good friend of mine, Brian Quinsenberry with Valvoline Corporate in Lexington, Kentucky. He’s had some serious health issues and is finally back on his feet and at work and at the office. I’ve worked with Brian over the years and he is a consummate professional. I’m glad he’s doing well.

This episode is brought to you by Tread Partners and its ReTread program. Tread Partners has designed a product called ReTread that is a full scale re-engagement program to win back previous customers. It’s a one-time, 90-day program that generates a guaranteed 10-to-1 return on your investment bringing back old customers. That’s correct, a 10-to-1 guaranteed ROI, no tricks or gimmicks. They’re your customers. We just get them back for you. So what are you waiting for? Email us at [email protected] or you may call (270) 570-2375.

So I was reading an article in Modern Tire Dealer recently, the July issue by Michael McGregor, who is a regular columnist. And he was interviewing Chris Garman with Sun Auto, who we’ve actually had on Gain Traction in the past. Chris is the mergers and acquisition guy for Sun Auto, and Michael works for Focus Investment Banking, which is a group that helps tire and automotive dealers sell their businesses. I enjoyed the interview while I was reading it so much, I reached out to Michael McGregor to be our guest today and he graciously accepted. I think this topic is important, so I wanted to take it on again.

Michael McGregor is the Managing Director at Focus Investment Banking. He specializes in mergers and acquisitions for tire dealers and auto repair service dealers. He has written a book which you can buy on Amazon titled Buy, Build, Fix, Sell. Its purpose is to help tire shop and service shop owners understand how to conduct an acquisition program of their own. It will help you understand how you are viewed by private equity groups and strategic buyers in order to help you plan smart growth.

If you have an underperforming business, this book will provide valuable tips on what you can do to improve your performance. And when you’re ready to sell, this book will help you understand how to maximize your business’ value. If after reading this book, you have any questions, feel free to reach Michael at [email protected], and McGregor is M-C-G-R-E-G-O-R. Michael, welcome to the podcast.

Michael McGregor:

Hey Mike, thanks for having me.

Mike:

Love it. So this topic is important to me. I find it intriguing. I think it’s important for dealers to understand when they get closer to the retirement age, if they don’t have a succession plan, what to consider if they think about selling their business. And there’s a lot of steps in it, but before we begin, I’d like to give the audience a little bit more background. As I got into your book today, I got a kick out of the fact that you and your brothers sold coupons for tire dealers in high school. So how’d that program start, where did the creative grew from. Let’s go to the beginning roots of all of this.

Michael:

Sure. True story. Pinky’s Pizza in Centerfield, California. My brother is playing pinball, and some guy comes up to him and said, “Hey kid, you want a job?” And he said, “Doing what?” “Selling coupons door-to-door.” And he said, “Okay.” And next thing you know, he ropes in my other brothers. And yeah, we did that for quite a while. My brother is still doing it in the San Francisco Bay area, and he’s had clients for like 30 years.

Essentially, we just knocked on doors selling coupons, getting people to come into the local gasoline service station or tire dealer at the time. And the gist was we would get the money from the coupon, the tire dealer would get the benefit of the customer coming in, and then the person that bought the coupon got a good deal.

Well, from there, I got my undergraduate degree. I went to graduate school at the University of Pennsylvania. And I was looking to go to Wall Street to become an investment banker, and Firestone comes in and interviews me. And true story, all the people on Wall Street seemed like not the nicest people in the world, and the Firestone people were so nice. This was 1983. And they invited me out to Cleveland and they said, “You’ve got a lot of experience in automotive.” And I said, “Really?” “Yeah. We’d like you to help us out with marketing.”

So that’s how I started with Firestone, did a lot of stuff with them. I started in financial analysis. I helped work on the first point-of-sale computer system. Later at corporate, I helped them, you’d be interested in this, Mike, I helped them develop the first relational database of all the customer information. We put all that information together, been collecting it for years. Then we started analyzing who our best customers were, who our lapsed customers were, developed all kinds of programs to increase retention of customers and loyalty and get them coming back. So what you said about return on investment, you’re a hundred percent spot on, in terms of getting those people to come back. It’s a great investment.

For Firestone also, I ran groups of stores out West. I ran a group of stores in California, 18 stores in Southern California, a group of stores in Northern California. Along the way I’ve done several startups in automotive, one of which I write about in the book. And you see a lot more people trying it these days, it’s a subscription model for auto care and tire service. So I was an early pioneer in that, and like all the pioneers, you take the arrows.

So anyway, since 2001, I’ve been doing deals and happy to be with Focus. We’re probably one of the most active investment banks in the automotive aftermarket for most of the tire dealers. We’re not doing the huge Wall Street deals. We’re licensed like those Wall Street investment banks, we’re just doing five to 10 to 20 to 30 store groups, along with, I guess, tire wholesaling. I have done some commercial tire work as well, too.

Mike:

Excellent. So the background’s established. I think that’s incredible. And I like your background. It’s so broad and extensive in the different places you played in it. I think one of the pertinent questions I wanted to ask you today from your perspective, and I know it’s in your book, but for the audience to maybe be interested in taking a deeper dive in the book, what would you say is the number one thing a tire dealer should focus on before even approaching anyone about, “Hey, I may sell in three to five years.”

Michael:

Get your house in order, man. First of all, make sure you’re profitable. Don’t leave money on the table by letting someone else fix your business and benefit it. Mike, it’s disappointing how many tire dealers I’ve run across that call me up and say, “Hey, I’m ready to do something.” And I look at their financials and they’re kind of breaking even. One of the biggest things we typically see right off, a lot tire dealers own their own real estate. Well, they’re not charging themselves fair rent. They think they’re making money. Just that first thing alone, I go right to the real estate. If you own it, are you charging yourself fair rent? Because if you don’t, you raise the rent, your profitability goes away.

So get your house in order in various ways, number one being, is it as profitable as it could be? Because at the end of the day, there’s a lot of things I’m sure about tire dealer businesses that are great: their locations, their people, this and that. The value is going to be based on the profitability that comes down to those numbers, so why don’t you have those in good shape.

So along with that goes with being able to document every dollar of expense that you personally… If you got a condo in Mexico and you charge it through the business, a lot of people do, be able to document that. If you take family vacations and run it through the business because you’re going to SEMA like I do every year, make sure you document how many of your family members and who’s not needed. If you have family members on the payroll and they’re just at college or something like that, and sometimes they help out, those are the type of things you want to just get your house in order. But number one is, hey, are you as profitable as you could be?

I guess along those same lines, I would take a look at pricing. A lot of tire dealers are not really involved with… I guess lately, with tire pricing, they’ve had to be. But they’ve got to look at your pricing and stay current and make sure that you’re charging a fair profit, a fair price, to earn a reasonable profit, which in my mind should hover around 10% recast earning. Okay? And there’s a whole lot to talk about that, but that’s what I’d look for, 10%.

Mike:

Do you typically see that dealers undercharge?

Michael:

Yes. Small business people in general undercharge across the board. Yes.

Mike:

They’re always worried about… They’re overly price conscious.

Michael:

The thing I keep hearing, Mike, “You don’t know. You’re not in this part of the world. You don’t know this. You’re not here. You don’t know what people like.” Hey, you’ve got to earn a fair rent. Costs keep going up. Health insurance keeps getting more expensive. If you provide good service, good quality service, you should be paid fairly for that. Having 10% net at the end of the day after everything is not unreasonable.

Now having said that, commercial tire dealers, Mike, if you’re getting 5%, you’re doing well, right?

Mike:

Yeah.

Michael:

Okay. And then wholesalers, man, if you’re getting 8%, you’re doing pretty well, too. So I’m just talking about retail tire and service dealers that are mostly doing business with the public. You should be shooting for 10% recast, absolutely.

Mike:

So what made you decide to write a book like this? Taking a book on anyway is a big undertaking and it takes time and you’ve got to put a lot of thoughts together. You obviously do a lot of editing, and you probably had a lot more chapters that you had at one time and you maybe condensed things. How do you arrive at this final product? But what was the catalyst that made you want to do this?

Michael:

This was easy. So I don’t know, maybe about four or five years ago, I was down in Mexico. I was given a speech to the Independent Tire Dealer Group, ITDG. And I was talking about why mergers and acquisitions happen. So Greg Smith of Modern Tire Dealer came up and said, “Hey, you ought to think about writing a column for us.” And anyway, I saw him again as SEMA a year later, and so I started writing a column. So in essence, the book, it was actually pretty easy.

COVID hits. I’ve got time on my hands. The office is shut down, moved to the house. I had a series of columns I had written, so I just kind of repurposed a lot and put it in the framework for a book, of which I’ll come out with a second edition because I’ve had another three years worth of columns I think since then. Because I started writing the book, I think, 2001-ish, right? That’s when COVID hit? In 2020?

Mike:

2020.

Michael:

2020. So I’ve got coming up, another 30 odd columns. Anyway, so that’s how. Basically, I had it and I assembled it and did it.

Mike:

That’s outstanding. So how long have you been writing for them, MTD? For a couple years?

Michael:

Coming up on four-ish, man, I think. Yeah, about four years. So, yeah. And I try to write about a lot of different topics, not just about mergers and acquisitions. I’m really interested in… I want to help tire dealers, so I talk about things like, “Listen, should you fix your business before you sell it?” How to do a turnaround, things of that nature.

Mike:

So my background is marketing with tire dealers. Give me your take on marketing and where these tire dealers should be spending their money or how much they should be spending on marketing. I get that question a lot, but I’d love to hear it from you.

Michael:

Yeah. Well, it’s interesting. When I started in the business, because I used to run the marketing for Bridgestone, Firestone, the Western US. It was the 10 Western states. I think it was like 350-odd stores that I had literally placed every newspaper ad, every Yellow Pages ad, every direct mail. It all ran through my office.

It’s changed. It used to be, if you wanted to have a business say in Los Angeles, oh my God. Say you had a chain of 10 stores in Los Angeles, you were spread out. Man, you had to advertise in the LA Times, LA County Herald, Orange County Register. Talk about expensive. So it was all about you really needed a bunch of stores to be able to spread that cost out.

It’s become what I call more democratized. Social media, Google AdWords, and things of that nature allow you to be a lot more localized with your marketing. And the best thing about it, it’s all trackable, right?

Mike:

Right.

Michael:

You can get return on investment. Much like what you guys do, once a dealer develops an internal database, you’d better be mining that thing. You’d better be hitting those customers up regularly or they’re going to go somewhere else. So I don’t have a percentage in mine, I just know it’s a hell of a lot less than what I used to have to spend to stay in business and get it.

And that’s why, I think from that perspective, for the independent tire dealer, they’re not really at risk from the Mavis’s, from the Suns, from the Bridgestones, from the Good Years that have the store count, because they could do a lot in their own market.

Now I do find what happens as a tire dealer gets older, they get more conservative. They think that, “Everybody knows us.” They stop risking money. They stop trying. I find that’s a mistake. So I find a lot of tire dealers that have no advertising spending. But then, when you go take a look at their locations and stuff, it’s all reflected in that as well. They maybe don’t look as clean. They don’t look as updated. There’s faded signage. There’s dirty stores. So they kind of go hand in hand. This is one of those businesses where you have to set the stage every day. You have to keep it looking good, especially since a lot of women come into the stores, a lot of women make those buying decisions. You got to keep it clean for everybody, really.

Mike:

And you brought up an interesting point. One of the things that we try to educate people on from kind of the old school way of thinking is, like you said, you had to buy into three periodicals if you were in LA. Well, that’s paying for a lot of distribution that you might not even need.

Michael:

No. Just pissing it away, man.

Mike:

Yeah.

Michael:

Pissing it away.

Mike:

And the beauty about the internet is you can dial it in, very localized. And like you said, it’s measurable. And measurable is the key. If it’s measurable, then you can manage it. And if you can manage it, then you know you can be successful at it.

Michael:

Yep.

Mike:

And that’s the nice part about it. Well, give me an idea of one of the biggest milestones you might be most… I don’t know. In your career, what you’re most proud of, maybe an acquisition or maybe helping somebody grow at a percentage rate or something like that.

Michael:

We’ve helped a lot of tire dealers along the way, from Ramona Tire, Evans Tire down in San Diego. Most recently, we did Bruce’s Tire in the San Francisco Bay area. That’s a client that is very loyal to us, kind of a heavy mix of commercial business if you will. So it took a long time, but we had a successful exit there.

I don’t think there’s any one thing. I’m just glad to be coming back full circle, if you will, because there was a time there, once I became an investment banker, I wanted to do nothing in automotive. I had done automotive my whole career. One of the reasons you switch careers is so you could get exposed to new things. And man, I was doing healthcare deals, I’ve done manufacturing companies, distribution companies. And then, the company said, “You’ve got that tire background. You might want to look to see if there’s any deals there.”

And I’m so glad they, did because it’s like coming home. And being out of it for a while, but then coming in through the helping tire dealers either grow or sell, I re-activated my network of folks I’ve known forever. People stay in the tire business. I have long-term friends like Brandon Stotsenberg. Oh, geez, there’s so many. Mike Cox, who ran ITDG. Walt Weller, who just retired. So anyway, you re-activate it, and then you find that knowledge base that I built over my career is really helping people. That’s my mission, is to help people, so if I could help tire dealers, then that’s great. So I think that’s probably the thing I’m most proud of.

Mike:

I think that’s a big deal. We’re kind of similar in that regard. I left for a little bit and then I missed it. Had an opportunity to get back in it and yeah, it was like putting an old, comfortable pair of loafers on or a pair of jeans on. And it was like, “Yeah, this is where I belong.” Even though I needed a break at one point, which that break was helpful. It clears your head. It makes you come back stronger, I think sometimes. And I’m sure dealers go through that. You see that second or third generation that try to get away from their dad’s company, and then they come back to it and then they kill it with it, because they just needed that separation for few years and get a different angle.

Michael:

When I got back into it, I was starting to say stuff to my compadres here at Focus, “The tire business hasn’t changed all that much in that amount of time.” You know what, Mike? It’s changing, and it’s changing fast, and it’s going to keep going. So it’s really a very interesting time in automotive. I think it’s a very exciting, very interesting time. There’s going to be lots of winners and leaders, and it should be fun to see what happens.

Mike:

Well, you’re definitely right about the changes. And then EV adds a whole nother…

Michael:

EV-like onus. Mobility as a service, this whole thing about Millennial kids not wanting a car and stuff like that.

Mike:

I know. I know.

Michael:

What the hell, man? I got my license as soon as I can when I was 16. It was freedom. As soon as I had my license, I bought my convertible, and I had a blonde in the side seat.

Mike:

Absolutely.

Michael:

Going from the San Francisco bridge to the Golden Gate.

Mike:

When I was 13 years old, I used to beg my mom to let me drive home from the grocery store if I had to go with her. And finally, she acquiesced and she let me do it. She goes, “I can’t believe I’m doing this.” So then I get that appetite and I’m begging. I’m not exaggerating this. I used to do that at 13, 14, 15 all the time. I was so ready. That’s what I can’t understand. I’ve got a nephew that doesn’t… He’s not worried about getting his driver’s license and he’s 17. And he’s just got his permit, but he hasn’t gone for the final. And I’m like, I can’t relate with that, man.

Michael:

No. Cars were freedom, man, and as soon as we-

Mike:

That’s right.

Michael:

We wanted it.

Mike:

They were. Well, listen, we’ve actually come up on our hard stop, but I’d like to ask you a very important question.

Michael:

Sure.

Mike:

What’s your favorite rock band of all time?

Michael:

Favorite rock band. I’ll tell you a little tidbit. So I grew up in San Rafael, California, and I was a paper boy. I don’t know if you know this, but a lot of corporate CEOs started as paper boys, not that I’m a corporate CEO. Along my route-

Mike:

Great work ethic, though. Great work ethic.

Michael:

Great work ethic.

Mike:

Yes.

Michael:

This was like fifth grade. You’re out there every day and on weekends, because it was seven days a week delivering newspapers. Well, along my newspaper route was Grateful Dead headquarters, right down on Lincoln Avenue. They were in this little place, the executive office building. They had their own place. So they were on my paper route, so essentially the Grateful Dead were my hometown band. And we used to see them around town and then they became, over time, or worldwide phenomenon. So all-time would have to be the Grateful Dead.

Mike:

That’s a great story. You grew up right next to it. That really is cool.

Michael:

It was cool.

Mike:

I’m glad I asked you that question. Well listen, it’s been a pleasure having you on here. I really appreciate you taking the time. I reached out to you, you had no idea who we were, and I appreciate you saying yes.

Michael:

Well let’s stay in touch, Mike. It was a lot of fun.

Mike:

And let’s give another shout out to your book real quick. How can people get a hold of you again?

Michael:

Okay. It’s called Buy, Build, Fix, Sell. You can find it on Amazon. And if you want to, like you said, reach out to me for anything, [email protected]. My phone number is (704) 621-7200.

Mike:

That’s great. So take advantage of that to our listeners. And to all our listeners, thank you for being part of the podcast again. If you’d like to recommend a guest to me, please email me at [email protected]. Till next time, stay safe and have a great day.

Announcer:

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