The Value of a Long-Term Exit Strategy With Giorgio Andonian of FOCUS Investment Banking

Giorgio Andonian is the Managing Director at FOCUS Investment Banking. Since joining the company in 2019, he has been instrumental in guiding mergers, acquisitions, recapitalizations, and capital raises for middle-market businesses in the Consumer and Automotive Aftermarket sectors. Prior to FOCUS, Giorgio served as vice president of 55 Inc. in Southern California and has held other roles in the tire industry spanning finance, operations, and supply chain management. He holds a MBA from Pepperdine University and several professional licenses including Series 79, Series 82, and Series 63.

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In this episode…

Are you considering selling your tire and auto repair shop in the near future, or maybe the distant future? How far in advance should you begin planning your exit?

According to Giorgio Andonian from FOCUS Investment Banking, it’s never too early to start taking the necessary steps because these transactions often take longer than expected. Giorgio says his company recently played a part in a sale that took three years to complete due to the advanced maturity of the tire industry. Among the questions to start considering now: Are you a C Corp or an S Corp? Are you charging yourself fair-market rent? What will management look like when you are no longer the owner?

On this episode of Gain Traction, Mike Edge welcomes Giorgio for a conversation about the many aspects of selling a tire and auto repair shop. He explains why it’s important to know what type of corporation you are, why you should start planning for a potential sale with your accountants years in advance, and the considerations associated with ownership of the property where the shop is located. Giorgio also talks about what he learned while working at his family’s Discount Tire Centers.

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

• Growing up in the tire business as a small child
• How Giorgio Andonian became involved in his family business,  Discount Tire Centers of Southern California, as an adult
• Why Giorgio’s inventory management experience in the tire industry has paid off with FOCUS Investment Banking 
• Pep Boys’ acquisition of 25 of Giorgio’s family’s 50 Discount Tire Center location
• How Giorgio and his father more than doubled annual retail revenue after scaling down to two locations
• What precipitated Giorgio’s transition into investment banking?
• Advice to shop owners who are considering selling their business

Resources mentioned in this episode:

• Giorgio Andonian on LinkedIn
• FOCUS Investment Banking
• Michael McGregor on LinkedIn
• Mike Edge on LinkedIn
• Tread Partners

• 55 Inc
• Focus Investment Banking
• Gain Traction Podcast
• Giorgio Andonian
• Mike Edge
• Tread Partners

Transcript

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:

Welcome to the Gain Traction podcast. I am Mike Edge, your host today, the Gain Traction podcast is where I talk with top tire and automotive business leaders. Gain Traction podcasters, if you haven’t already, please listen to a podcast I recently did with Don Detore, editor of Tire Business. Great guy, great story, and true champion of our industry. Our sponsor today is our parent company, Tread Partners. Tread Partners is in the business of designing and developing custom websites for tire dealers and auto repair shops with more than five locations. What Tread has learned over the years is that when you have five or more locations, your business is really like five businesses under one name. So the website needs to do a good job of promoting each location’s strengths. To learn more, visit treadpartners.com.

Today we have Georgio Andonian, managing director at FOCUS Investment Banking as our guest. Georgio has a long history in the tire business, can’t wait to talk to him about it. Giorgio, welcome to the Gain Traction podcast.

Giorgio:

Thanks, Mike. Pleasure to be here.

Mike:

So I already know you’ve got a background in tires, audience doesn’t, but let’s talk about where you grew up, how you grew up, where you’re from, et cetera.

Giorgio:

All right. I’ll keep it brief because there’s a long history there, but a family business was Discount Tire Centers of Southern California. I grew up in the business. My associate, Michael, always says I’ve been in tires since I’ve been in diapers. So my fondest memories are being at our warehouses and the smell of tires running through and getting scolded by management for basically safety violations left and right with my entire family. So the entire family was in the business.

Mike:

You were the kid probably climbing on stacks, the racks, probably even playing on a forklift here or there.

Giorgio:

We did. So it was myself, my sister, my cousins, both of whom have actually been in the automotive and tire business as well. [inaudible 00:02:21] Sergio Andonian and Alex Andonian and their families. So we were all in it together from the early days, and so we would always get called on the speakerphone to come get your kids. They’re in trouble. So it’s been part of our lives as far back as I can remember, and the smell of tires is like Christmas trees.

Mike:

That’s awesome. And it is funny how strong the smell of something can emotionally affect you. Because to you, I think we talked about this before, but to you, the smell of tires is a nostalgia thing, isn’t it?

Giorgio:

Absolutely, yeah.

Mike:

Takes you all the way back, doesn’t it?

Giorgio:

All the way back. I just always remember the warehouse, for whatever reason that’s what reminds me of it.

Mike:

That’s awesome. So as you were growing up, did you play sports or anything or music?

Giorgio:

Yeah, I was a big basketball fan. I played basketball, both middle school, a little bit in high school, and recreationally just on the weekends with friends and so on.

Mike:

Now did you go on to college?

Giorgio:

Not to play basketball, I have too many injuries, but I did go to college, University of San Diego and got my master’s a couple of years later at the Pepperdine University.

Mike:

And what’d you master in?

Giorgio:

Business administration and finance.

Mike:

Okay. So then you at that point really did know that you wanted to go into some form of maybe investment banking or not.

Giorgio:

Not at all. It’s funny, historically, just as I was growing up, as I was getting older, high school and college, my family had always said, do not rely on the family business. You’re not going to be in the family business. You have to carve your own path and be a professional in your own. And so I did that. After college, I went and got a job, started working for a used clothing recycling industry, which is a whole new world for me, and about nine months in I got the phone call from the family saying everything we had told you, don’t worry about that. We need your help. I said, okay.

Mike:

That’s priceless.

Giorgio:

[inaudible 00:04:23].

Mike:

Wait a minute here. Okay, I’m on a little different trajectory here. Did you want to send a contract or something?

Giorgio:

Yeah, it’s your dad, so you’re of course, and any opportunity to work with him was very welcome. So I took the job, I left the current job I had and really started helping them in the back office. Just trying to learn all the different pieces and parts of how a business of that size would run. We were about 50 locations or so at that time, a hundred million or so in revenue, and we had wholesale operations, e-commerce and all of those. And just used that time to learn a lot and kind of jumped around from different departments to learn all the different aspects. Had spent years in the shops. So summers growing up, weekends I would be working, whether it’s in the back shop mounting tires as best as I could, and then obviously at the sales counter doing sales and so on.

Mike:

When you came back, I mean, what was your dad’s intentions for you? Was it just to have another set of family eyes in the business that could help run it or did you have a particular skill in the finance that he needed you for, or did you just find a home as you got back?

Giorgio:

I ended up finding a home. Really at the time there was a lady who was helping with a lot of inventory and purchasing and all those parts for all the locations, and she was leaving, and they couldn’t find anybody who had any tire experience who at that junior level who would be doing that job that wouldn’t require excessive amounts of training. So it really started at a lower level and just got into the weeds of inventory.

Mike:

Gotcha. Well, I mean that had to be extremely valuable though for you and for the company.

Giorgio:

I believe so. I mean, I kind of retook on the entire merchandising, all the ordering, took responsibilities, made sure I was communicating with the managers and the store’s personnel to make sure that they were getting the right products and also selling through the right products. Had a lot of support from the back office too on different reporting and systems. I learned Excel there. Very valuable. Helped basically do an inventory movement reports to make sure that we’re not sitting on too much debt inventory, because proliferation of skews and weird tires and sizes that randomly were in the shops. Tried to work on cleaning all that up as best as we could.

Mike:

And I don’t want to get too far ahead, but I know you’re at FOCUS Investment Banking now, which helps shops and dealers sell their businesses when they’re ready. But I’m just sitting here thinking the experience that you got even on inventory management has to be huge value in the way that you understand setting a value or helping someone put a value to their business.

Giorgio:

Yeah, I mean what I think separates us a little bit, especially just the automotive group in our firm, we all have experience. Myself having worked in the shops, having ran my own business with my father, a separate entity. My associate Michael worked with Bridgestone, Firestone and marketing. We know what the business owners are going through. We’ve been there, we’ve had our hands on it. Gotten greasy as well. So I completely get it and I think that’s the value that we bring a lot of our prospects or people-

Mike:

Even to give a shout-out to Michael McGregor who you work with, Michael is at FOCUS and we’ve interviewed him, and Michael had extensive experience as well in the automotive. That’s all he knew as well, isn’t it?

Giorgio:

Right. And so our entire group in the auto team has, we have a few others, they’ve all worked, or whether it’s a Fortune 500, such as AutoNation or others in the collision world, we’ve all have our hands in the industry. We’re not just coming in and saying, let me help you. We know what we’re looking for when we see someone’s business.

Mike:

You’re not even playing like a general practitioner of investment banking. I mean you’re very dialed in.

Giorgio:

Correct. We stick to the automotive aftermarket and within that we have our silos where I won’t go into collision. I don’t know much about collision. We have experts in collision, so I’ll stay in the aftermarket, tires and service in addition to parts and accessories, aftermarket, fixing up your cars wheels, performance parts and so on. That’s just a hobby of mine.

Mike:

So back to the story on yourself. So you’re doing this more inventory management role at your dad’s company, and then where did it go from there?

Giorgio:

It kind of expanded to more of a business analysis, helping the finance and working, I had a mentor there. He was a president at the time, helped me understand all the financial models, so I was helping build out all the budgets, financial reporting, and so it just expanded to more of a business operations and analysis role. In addition to inventory management we just kind of got lumped together.

Mike:

I got you. Okay. And then eventually you guys, I mean-

Giorgio:

How did we split off?

Mike:

Did you sell after that?

Giorgio:

Yes. So this was probably 2013. We were actually approached by Pep Boys at the time, and Pep Boys had identified I’d say 20 or 25 locations of ours that they fit their model and that they wanted to acquire. They didn’t want to purchase the entire company, so they selected to pick and choose.

Mike:

This was 20 or 25 out of how many at this time?

Giorgio:

About 50 approximately.

Mike:

Okay, you’re at 50. Okay. Gotcha.

Giorgio:

Right. So that transaction happened. Yeah, just about half, and we’re at a position where we have half the company in the same administrative overhead. It just didn’t make sense financially, so obviously it’s a family business. So I had my father and my uncle amicably decided what’s the best path forward? Should we split the baby? Should we buy one person out or the other? And essentially we decided that my father and I would just take two locations and work out the rest. My uncle and cousin can keep the others, and we’ll kind of run our own little company and they can run the parent company and basically find a way to cover everyone’s overhead costs. So everything was great, amicable and my family, my uncle and cousin are on a growth trajectory. At the same time, it took us about a year and a half, but then we went on a growth trajectory to and acquired several different businesses and grew it from I’d say about three million in revenue to just about 19 or 20.

Mike:

Nice.

Giorgio:

Out of seven locations.

Mike:

So you and your dad stayed in retail and kind of went from two to seven is what you’re saying?

Giorgio:

Correct. So we just ran our own little version of what we had originally done, and that was just a conscious choice on my end. I kind of pushed for it, I wanted to run it my way, if that makes sense. I had a vision in my head of how I would want to treat a customer, our processes, and I felt that trying to move a large ship of 20, 30 locations versus building from the core foundation of two stores and growing from there was just a personal choice that-

Mike:

That’s pretty cool. How’d you arrive at the two? Did you just have two in mind that you thought would work best for [inaudible 00:11:47]?

Giorgio:

Yeah, it was just two in mind. One of them was our flagship store that we had just, that’s where I had grown up. I had worked there over the summers. That was my store. And so that was the other one. The other one was just closer to us and it was a little too far out for my uncle and them to be able to just have a single store that far out [inaudible 00:12:04].

Mike:

I got you.

Giorgio:

So it just made…

Mike:

Made sense all the way around. So then you navigated, when did you go to FOCUS or how’d you get?

Giorgio:

So FOCUS was about 2018, 2019. Michael and Rick, our CEO had actually helped my other uncle out of San Diego transact out of Evans Tire, so they helped sell those guys to formerly GB Auto, now owned by Leonard Green. And so naturally there was an introduction made at that point, and so I met Rick and Michael as part of a, “Hey, how can we help you? We helped your brother.” And so it was just an easy introduction there. Yeah, pretty cool.

Mike:

And then as that, you guys just developed a relationship and then you were like, or did you say, “Hey, I’d like to do what you’re doing,” or did they say-

Giorgio:

Well, I was very curious. So since I have a finance background, I was very curious about what investment banking was all about. Then the nitty-gritty, you hear about it, you see it, and really, I just asked a million questions during our meetings and I think that triggered something in them that said, hey, maybe this guy knows something. And they reached out to me and asked if I had any interest in learning more, and frankly I said, yeah, I mean this is something that I’ve always wanted to be a part of. And they threw the course book at me literally and said, “You better study this book. Call you in a few months.” And that’s what I did. So I took an education course, crash course and got quizzed over the phone and from there just started to develop into this, okay, well how can you transition into this industry without leaving your dad high and dry? And so I did transition .

Mike:

And did your dad support you on that?

Giorgio:

A hundred percent.

Mike:

That’s awesome. So what type of licenses do you need to be in investment banking, I mean series testing?

Giorgio:

So there’s three that I have. It’s the 63, 82, and the 79. We really require just the 63 and 82 at our firm, because we mostly work with private placements, as we call them. [inaudible 00:14:14] businesses, not publicly traded. To go a little bit further, to do the publicly traded IPOs and so on, you need the 79. And having great mentors in Michael and Rick, they definitely suggested I do that, which a little bit extra work, but I got it done. And so now I have those three licenses.

Mike:

Fantastic. That’s awesome. I mean, I assume one of the things that you like to do in the industry is network, just to let people know that, hey, we exist. And one of these days you’re going to have questions.

Giorgio:

Right.

Mike:

And you want to be available for, hey, when you get to that point, Mr. Shop owner, and you’re thinking about these things, whether it’s in your thirties, forties, fifties or sixties, call us at FOCUS. And you basically walk them through that process and tell them how to what? Get ready for the [inaudible 00:15:04].

Giorgio:

How to get ready. The initial step is always to make sure that your business is ready, because there’s a lot of things that we’ve come across, especially when it’s multi-generational businesses. What type of corporate structure are you C-corp or an S-corp? California and you’re C-corp, you’re talking about almost 60% in taxes unless you can get creative. So are you ready for that? What does your management look like without Mr. Shop owner or business owner? You have to make sure that you’re ready to hand this business over [inaudible 00:15:39].

Mike:

Just that knowledge base right there, how brutal is that? Almost 60% in taxes.

Giorgio:

It’s incredible.

Mike:

You work your whole life and you give away 60%.

Giorgio:

So you’ll get corporate tax and then if you want to pull the money out of the company to pay yourself as a dividend, you get personally taxed on that as personal income. You get hit twice.

Mike:

That’s brutal.

Giorgio:

Yeah, so we’ve done this in the past. We’ve actually sold a few C-corps, but we’re able to transition it to maybe, we have to negotiate a stock sale as opposed to an asset sale. There are tricks that we can do, but it’s important to know all of that ahead of time and really talk to your accountants, professionals, CPAs to make sure that, listen, I’m going to sell my company in one year, three years, five years, 10 years. They need to be in lockstep with you as to what your plan is. Not tell them, oh, by the way, I have a sale in 30 days.

Mike:

Right.

Giorgio:

You’re doing something in a good timeline. You’re not going to flag the IRS. If you do something 30 days before the sale, you’re going to get some red flags popping up .

Mike:

And some of your conversations could go along for several years, if I’m not mistaken.

Giorgio:

Absolutely. We had one transaction that just closed. It’s been about three years.

Mike:

And that’s not unusual, correct?

Giorgio:

Not in this industry. The tire industry is very different. It’s very mature. You have to find the right buyer. It’s a little less so now when it becomes a private equity being so involved, but some businesses take time to be ready. Are you charging yourself fair market rent? Most business owners don’t because they own the property and they just want to keep the cashflow. Well, if you charge yourself fair market rent, your evaluation goes down. Now we have to provide you some, I guess, insights on how to increase your profitability again to make it a valuable asset. You don’t want to sell your company at its lowest. You don’t want to sell it at its highest. You want to sell it when it’s way up. And so that’s where we provide some guidance.

Mike:

Speaking of that, the land issue or the ownership of the building, et cetera, are there a lot of people that sell their business and retain the real estate or do they usually sell it all together? How’s that work?

Giorgio:

Most of the ones that we’ve worked on, they keep the real estate and lease it. After the fact, when you have a large entity buying your business, you now have a grade A tenant. So the value of your land just went up. So we’ve seen others hold onto the lease and just have a great tenant and others sell it to a third party after the fact, because now they have a national tenant or a very large.

Mike:

I got you.

Giorgio:

300 location.

Mike:

Am I mistaken in saying that a lot of these large national groups, they really don’t want to get into the real estate business, do they?

Giorgio:

Not the private equities. There’s a few smaller, not smaller strategics that do, I’ll highlight Southern Tire Mart as one. They have a real estate interest as well. They want to own the land and the business, but they’ll always look at the real estate. I just feel that I’ve seen most of them end up just leasing it because it’s too complex at this point. They just want to keep growing and adding and look at the real estate at a later time.

Mike:

Well, and it’s such a localized thing, it makes it difficult to be good at it. I mean, if you’re in 50 states, or even if you’re in 25 states to try to be, I’m saying really efficient at your real estate business when really what you want to do is just have cars come in the bay, fix them and move them on.

Giorgio:

Exactly. Unless you have someone specifically focused on just that, which some may, I think the core is just grow the unit count, get the cars up.

Mike:

But needless to say, you’re helping that owner navigate that best option for them and their financial interest.

Giorgio:

That’s our goal. That is our intent at all times. When you’re doing a process and you’re near the end, our goal is to provide with several different options. This buyer wants to buy a hundred percent and the real estate. This buyer will buy 80% and lease it. This buyer only wants to buy 30%. And so our job is to present as many options as possible and let the business owner make the decision that’s best for them. Everybody has their own unique needs. And so, in many cases, if there’s a second or third generation that’s already in the business, they may not want to sell a hundred percent. They want to look out for the next generation, their daughters, their sons to have a career, have a job moving forward with a larger entity and have an opportunity to move up in the ranks. So it all is unique in each way.

Mike:

Interesting. So you brought up another question I have. When you think about passing it on from whether it’s first to second or second to third generation or even third to fourth. I mean, you guys play a role even in that kind of passing of the torch too. If the owner, meaning the dad who wants to pass on the torch, but hey, he wants his equity out of it, you guys can get involved and help both sides there, right?

Giorgio:

Exactly. A hundred percent. And so we’ve done that as well. In some cases the dad owns or the family owns 90% and the children own 10%. Well, we can help them get out of that, not get their liquidity event as well.

Mike:

Yeah.

Giorgio:

Variety of different ways.

Mike:

Well, if you had to say your biggest strength, say versus your competition, FOCUS Investment Banking compared to anybody else that’s in the business of let’s say helping tire and auto repair shops plan for the future and then potentially sell or liquidate, what do you think your strategic advantage is?

Giorgio:

It comes back down to experience. We’ve been in the weeds and I can look at a P&L of a store and I can tell you right off the bat what you need to do. Actually, we’re helping a client right now who is not engaged for a sale, but rather is engaged for us to help him maximize his value down the line. So we’re doing basically a consulting for him and helping them increase revenue, increase margins, staffing. And so, just by visiting the stores and seeing them and looking at the P&Ls, we know what we’re looking for. And that is the value that we bring. We know the business inside and out.

Mike:

And I think that’s important to say about, it’s kind of like, I don’t want to oversimplify this, but there’s statistics out there that when you get a real estate agent to sell your property versus you trying to sell it yourself, supposedly they average 15% higher. Well, that easily covers their fee, right? And a big margin ahead of that. And I say that just to kind of help people put it in perspective, because I get it, there’s bad real estate agents, but we all know good ones too. And usually it’s based on experience, right? And they’re good in the market. They don’t cheat the market. They’re very fair to the market, but they’re able to maximize it because they know how to value your home, et cetera, and then present it to the market. And I think, and I may be oversimplifying it, but in a way, you guys are doing that in spades for these guys that they built a lifetime in the company and they want that nest egg and they want to be able to slow down, retire, whatever you want to do, but you’re helping them achieve that goal.

Giorgio:

It’s exactly that. And most of these business owners are actually great negotiators. They’ve been in this for a long time. Working with a private equity, for instance, is a whole different animal. They are institutional investors. They know what to do. They know how to get the right deal done for them. It’s always a nice story that we’re going to, don’t go find an investment bank, they’re just going to charge you. We’ll give you the best value no matter what. I’ve heard millions of stories like that where it takes six, nine months of dragging it along and well, we lower the price and so on. So we just try and keep everybody honest, and that’s really the key where we bring our value. And if anyone is interested, we do have a great case study of showing how we cover our fees and then some when a client decides to go with us.

Mike:

Nice. Well, real quick, tell the listening audience, our podcasters, where can they find you and then how can they get in touch with you, or even find out more information?

Giorgio:

If you just go to focusbankers.com, I’ll probably be the second guy on the list if they’re under the team. You can find me on the website right there. I’m available on the LinkedIn. My email will be my first name and last name at focusbankers.com.

Mike:

That’s Giorgio Andonian guys. So at focusbankers.com.

Giorgio:

Right. So I can be found there. I’m active online, find my contact information online, phone number and all that as well too.

Mike:

Well, I mean, you and I think had met already, but we stayed connected through LinkedIn, so I do know you’re active there. So if you want to reach out to him there, you can find him through my contacts as well folks. But I can’t say enough that having you on the program, but I got to ask you another tough question. We’d like to make things personal here at the end. What’s one of your favorite places to visit?

Giorgio:

Favorite place. I’m partial to Europe. I grew up, I was very fortunate that my family would take us on family vacations all the time. Both Italy and France, the south of France have fond memories there. And Italy is where I got married, so there’s definitely a big connection there for me in Florence.

Mike:

I would say so. That’s a good answer. If that special someone ever listens to this podcast.

Giorgio:

I’ll make sure to cut out this part just to give it [inaudible 00:25:36].

Mike:

That’s great. Well, listen, I can’t thank you enough for being part of Gain Traction podcast. It’s been a real pleasure.

Giorgio:

Sure. Thank you for having me.

Mike:

Yeah, absolutely. And we’ll do it again sometime. So to all our podcast listeners out there, thank you for being part of our podcast. If you would like to recommend a guest to us, please email me at [email protected]. Until next time, have a great day and stay safe.

Announcer:

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