Les Schwab Tire Centers has reached a deal to sell the company to an investment fund in California called the Meritage Group, ending local family ownership of one of Oregon’s best-known businesses.
Bend-based Schwab Tire announced it would seek a buyer for the 68-year-old business in December, citing the difficulties of running a business in its fifth generation of family ownership. Tire baron Les Schwab started the business in his hometown of Prineville in 1952 and grew it into one of Oregon’s largest companies with nearly 500 stores in 10 western states, and annual sales of $1.8 billion.
The business remained in Schwab’s family after his death in 2007.
When Schwab announced its sale plans last year, Bloomberg reported the owners hoped for $3 billion in the deal. Schwab and Meritage did not report terms of Tuesday’s transaction but said the current management team will remain in place and Schwab will continue operating as it has.
“We see Les Schwab Tires as an ideal investment,” said Aubrey Barth, Meritage’s managing director, in a statement. “The company’s exceptional employees and programs, strong financials, and respected, customer-focused brand set it up for success for years to come.”
Meritage’s founder, Nat Simons, is a billionaire investor and climate change activist. Simons helps run a number of investment funds in addition to Meritage. It wasn’t immediately clear how Les Schwab fits into his investment thesis.
Meritage (rhymes with “heritage”) manages more than $10 billion in assets. It has large holdings in Google, Charter Communications, Microsoft, Salesforce and Sherwin Williams Co., among others. It also owns Portland beverage distributor Columbia Distributing.
“Meritage Group has a history of preserving culture and values while growing its companies with investment over time. This is a great fit, and aligns well with Les’ vision and all we have built together,” Schwab CEO Jack Cuniff said.
Les Schwab Tire Centers
Founded: 1952.
Headquarters: Bend.
Ownership: Privately held by Les Schwab’s grandchildren and their families. The company has agreed to sell to California investment firm the Meritage Group. They expect to close the deal by the end of the year.
Stores: 500 in Oregon, Washington, Alaska, Idaho, Montana, California, Nevada, Utah, Colorado and Wyoming.
Employees: 7,000
Annual sales: $1.8 billion.
Schwab Tire’s sale is the latest in a succession of large, Oregon-based businesses to sell. Precision Castparts, Mentor Graphics and Vigor Industrial, among many others, have found new owners in the past few years.
Oregon now has few large, locally owned companies based here. It’s a trend that has worried economists for years, fearful that out-of-state owners would cut satellite operations in a downturn before trimming their headquarters.
When it announced sale plans, though, Schwab maintained any new owner would keep the company together and retain its Bend headquarters and Prineville distribution center.
“As our family grows and ages, it has been very important to us to remain committed and aligned behind our grandfather’s vision,” the Schwab family said in a statement Tuesday. “While it was hard to make the decision to sell the Company, we are very confident Meritage Group will continue that commitment and alignment, and will build on all we have accomplished over the past 68 years.”
Meritage has a fairly low profile as an investment firm with little public record of its investment philosophy or management practices. If Schwab had sold to a competitor the new owner might have consolidated operations, cutting jobs at the company’s Bend headquarters and combining its Prineville distribution center with facilities elsewhere.
Investment firms like Meritage could seek profits from Schwab by putting more money into growing the business, by changing operations or by cutting costs. Meritage said Tuesday it plans to invest in Schwab but Dave Garten, who teaches business strategy at Portland State University, said it’s impossible to gauge the new owner’s intentions without knowing more about its objectives and methods.
“Financial investors have a lot of different motives,” Garten said. “So we’re spitballing possibilities but we don’t really know yet.”
Ed Maletis was part owner of Columbia Distributing, and served on its board, when the Portland company sold to Meritage in 2012. On Tuesday, he said Meritage proved a good owner for his old company and Maletis said he expects it will treat Schwab the same way, leaving management and operations intact.
“What Meritage brings as an owner is a significantly larger checkbook should the opportunity or need arise for further growth and/or acquisitions,” Maletis wrote in an email. “That has been a benefit to Columbia employees and I expect it will be the same for Les Schwab employees.”
Neither Schwab nor Meritage said anything about the deal’s structure. Past sales of prominent Oregon businesses, notably G.I. Joe’s, were financed with debt — which sent that company into bankruptcy when the Great Recession hit.
Schwab Tire suspended its sale plans in June, citing the coronavirus pandemic. And though the virus still rages, financial markets have been unexpectedly strong and corporate dealmaking has continued apace.
Even as his tire business grew, Les Schwab adhered to his old-school business practices. The company returns half the profits from each store to its employees (Schwab said Tuesday profit-sharing will continue) and only hired managers from within the company. The tire chain has expanded into southern California and as far east as Denver, but all its products still pass through its Prineville warehouse, in the high desert 36 miles northeast of Bend.
Tire jockeys still race out from service bays when cars pull into the parking lot to greet customers. The company often fixes flats for free, anticipating people will return when it’s time for their new tires.
Les Schwab timeline
1917: Les Schwab born in Bend. He was schooled in the Brooks Scanlon logging camp, in a railroad boxcar with holes cut in the side. He had three newspaper delivery routes, picking up the papers with the log train and delivering The Oregonian, The Oregon Journal and the Merged News Telegram during the noon hour.
1936: Marries Dorothy Schwab at age 18.
1952: Les Schwab, 34, buys OK Rubber Welders tire shop in Prineville with an $11,000 loan from his brother-in-law and $3,500 from selling his home and borrowing on his life insurance. At the time, Schwab later said, he’d never fixed a flat tire. Sales quintupled over the next year, to $155,000. Within three years Schwab had Les Schwab Tire Centers in Bend and Madras.
1971: Son Harlan Schwab dies in car wreck at age 31.
1980: Schwab Tire has 71 stores.
1983: Phil Wick takes over as Schwab Tire’s president but Les Schwab remains closely involved in the business.
1986: Schwab Tire opens its 100th store.
2004: Schwab Tire hits $1 billion in annual sales.
2005: Les Schwab’s surviving child, Margie Denton, dies of cancer.
2007: Les Schwab dies at age 89.
2008: Schwab Tire moves its headquarters from Prineville to Bend.
2016: Dorothy Schwab dies at age 98.
2019: Schwab Tire hires Goldman Sachs to broker sale of the business.
Schwab himself vowed he would never sell the business and hoped his successors wouldn’t, either.
“The company isn’t for sale,” Schwab told The Oregonian in 1997. “It will go on, bigger and better than ever, and continue to provide opportunities for young people to be successful. All the stock will remain in our family.”
However, Schwab’s two children both died before he did. And though some of his heirs serve on the privately held company’s board, none hold executive positions with the company and none of his four grandchildren live in Oregon.
When his widow, Dorothy Schwab, died in 2016 at age 98 her obituary listed 17 direct descendants.
Clarification: This article originally described Meritage as a hedge fund, which is how Bloomberg and other financial publications describe the firm. But it’s not clear Meritage does, in fact, hedge its investments. So the description of the firm has been changed.
— Mike Rogoway | [email protected] | twitter: @rogoway | 503-294-7699
