TPG Revs Up a $1.3 Billion Deal for American Tire Distributors

American Tire Distributors, the largest replacement tire distributor in the U.S., has been passed among various private equity firms. Back in 2005, the company's owner, Charlesbank Capital Partners, sold the operation for $700 million to Investcorp, Berkshire Partners LLC, and Greenbriar Equity Group LLC.

Now private equity firm TPG Capital has agreed to pay $1.3 billion for ATD. The deal has fully committed financing from Bank of America (BAC), Barclays Capital (BCS), General Electric Capital Corporation, RBC Capital Markets, UBS (UBS) and Wells Fargo Capital Finance (WFC), part of Wells Fargo & Company. This is yet another sign that major private equity players are taking advantage of the strong credit markets.

Nice, Steady Business

With the help of its private equity sponsors, ATD has taken some key steps to build a solid platform. The company has 83 distribution centers that have roughly 40,000 stock-keeping units (SKUs), which include diverse brands like Bridgestone, Continental, Goodyear, Michelin, Hankook, Kumho, Nexen, Nitto and Pirelli.

For its 60,000 customers, ATD provides a myriad of services, including quick delivery, business support, training and consumer market data. What's more, ATD has been aggressive with its online efforts. For example, the company has a business-to-business Web portal that provides customers with extensive product details. There's also TireBuyer.com, which helps local tire retailers to sell over the Internet.

As for the financials, ATD increased its revenue in 2009 from $1.96 billion to $2.17 billion and EBITDA came to $98.8 million. More importantly, the company still has lots of room for growth, as it has no presence yet in 18 states that represent roughly 35% of the U.S. market.

In other words, it's a good bet that TPG will use its capital to grow ATD with acquisitions. Over the past five years, ATD already has added $700 million in sales because of deal-making.

IPO Problems?

Interestingly enough, ATD filed for a $230 million IPO in February, but the offering will be canceled because of the TPG acquisition. Perhaps this is an indication that there is still much skepticism about the return of public offerings.

Just look at Thursday's IPO activity: Codexis (CDXS) and DynaVox (DVOX) priced at the bottom of their ranges, while Alimera Sciences (ALIM), THL Credit (TCRD) and Global Geophysical Services (GGS) priced below their ranges. What's more, underwriters had to cut the share amounts on many of these offerings.

Yes, the IPO market still looks choppy, which means that private equity firms may be more willing to sell their portfolio companies -- especially to larger firms that are getting more aggressive with deal-making and finding it much easier to get financing.