Tom Marx is the president and co-founder of Marx Group Advisors, a division of The Marx Group marketing and communications firm located in San Rafael, Calif. As president of Marx Group Advisors (MGA), he brings more than 12 years experience in delivering merger and acquisition services with a focus on supporting clients to help them achieve maximum value. As the President and CEO of The Marx Group, he is able to draw upon his 25 years of marketing expertise in the automotive and heavy duty aftermarket and a network of valued relationships for the benefit of clients seeking merger, acquisition or other equity consultation services.

Last fall, you and Paul Cooperstein announced the formation of Marx Group Advisors (MGA), a new business that will help buyers and sellers in the automotive and heavy duty aftermarket with mergers and acquisitions (M&A). What expertise and capabilities does this new business offer to prospective clients?

Although the business called Marx Group Advisors (MGA) was launched last fall, Paul and I have been engaged in mergers and acquisitions (M&A) consulting for many years both within, and outside the aftermarket. We saw a clear need for a more intelligent M&A strategy for aftermarket businesses engaged in either growth or divestiture transactions. Our expertise combines considerable financial and legal experience with a comprehensive knowledge of the aftermarket.

The benefit to clients is immeasurable, especially if contracted in the early stage of the decision making process. Our “Intelligent M&A strategy” is designed to help a company get the edge in the negotiation process. As a result, we do a lot of preparation work on many levels, research the marketplace internationally and nationally, have relationships with investment bankers, establish financial and marketing goals and ensure a smooth transition on all fronts. This is especially critical during post-M&A integration.

MGA will represent buyers or sellers and when needed, we can bring our equity partners to the transaction.

The automotive industry is in a time of great change and financial peril at the moment and as many have noted, the automotive industry and the supplier industry are indelibly intertwined. How do you see the automotive industry’s situation impacting the aftermarket? How far do you foresee the automakers’ struggles carrying over into the aftermarket?

Certain parts manufacturers, such as tier 1 and tier 2 OE suppliers have unique problems. In addition to reduced demand from the OEs, revenue derived from selling replacement parts through OE service dealers is also in drastic decline. Compounding the problem, companies are challenged on other fronts, especially the banking crisis. This has resulted in factory closings and major workforce reductions. It’s this sector that is suffering the most negative impact of the automaker’s drop in new car sales volume.

For parts suppliers that sell replacement parts in the aftermarket only, the sales declines, in most cases, have been far less drastic. In fact, there are isolated instances of moderate sales increases. The performance and styling sectors have been hard hit by declines in new car sales, reduced credit card lines of credit and job losses. Truck performance aftermarket parts have also experienced a decline, mirroring the transition to smaller, and more fuel efficient vehicles. The service and repair sector is doing better, especially due to the closure of OE dealers and the decline in new car purchases.

The short term forecast will see business improve in the fourth quarter of 2009 to the first quarter of 2010. Flat growth will continue for another two to three years, so gaining market share through acquisitions remains a highly viable strategy.

I believe the aftermarket can look for stable and moderate growth.

Do you expect that we will continue to see suppliers selling off ‘non-core’ divisions and brands over the next few years? And, does this create an opportunity for other suppliers who are looking to grow?

I believe the current divestiture moves are deeper than selling off non-core divisions and brands. A major challenge is the lack of liquidity that has occurred due to the banking crisis. The perfect storm for major cash flow issues has resulted in the widespread demand of customers to pay slower, the demands of component suppliers to be paid faster, the decline in revenue, and the gap in the middle that has in the past been fulfilled by lines of credit. When those lines of credit were yanked or reduced last fall, the squeeze between cash in/cash out reached a critical point. Some management people decided to sell divisions, sell entire companies, drastically reduce overhead and in some cases, file for bankruptcy protection. Seemingly there were some irrational moves made. But in some circumstances, the economic downturn forced companies to make decisions that they should have entertained earlier.

The opportunity to acquire a competitor, gain intellectual property and expand R&D or manufacturing capacities is very present at this time and will continue to be for the next several years. Weaker companies will be acquired, consolidation will continue and the market share matrix will be drastically altered. While everyone hates to see the tough economic situation we are it does provide great opportunities for some suppliers to grow.

With all the M&A activity taking place right now, what will the aftermarket industry’s ‘big picture’ look like in the next five to 10 years?

When we look back five years from now, the aftermarket will look very different than it does today. The major retail chains will all have nationwide footprints, parts suppliers will be more focused on core competencies, independent repair shops will be even more distinctively divided between “A-B-C” segments, and the independent aftermarket service dealer will be a more prominent repair and maintenance option for vehicle owners than new car dealers are today. Sales will be more sharply focused, marketing initiatives will be more digitally focused and most companies will continue with the current lean financial models that are prevalent during this recession.

What will a strong aftermarket company look like in the future? Will we see lots of smaller, more tightly focused businesses or do you think we will still have a number of major multi-billion dollar players with numerous brands and divisions?

You will see both small and large companies and both will be robust. Whereas some of the roll-ups will fail and be divided and sold off for the value of their pieces, we will see more roll-ups being formed, simply because the multiples of EBITDA for manufacturers are so low at this time, which creates more affordable acquisition opportunities. At the same time, EBITDA multiples are currently high for retail and certain categories of distributors, which means the value opportunity for retail consolidation may become more challenging. Offsetting these opportunities is the need to have equity financing procured very early in the M&A strategy. Traditional banks are still reluctant to lend, even though interest rates are historically low.

It really is about the money – if a company has a lot of cash reserves and has adjusted its costs to stay profitable, there is a lot of opportunity to grow – and having multiple brands and product categories still makes sense. This is true for a company acquiring someone in their category or acquiring related companies for the sake of building large, conglomerate-style entities.

A strong company will be focused on its product categories, will stay lean by outsourcing certain business functions and will have aggressive product development, sales and marketing strategies. A pre-planned and determined post-merger acquisition strategy will make the difference between a successful or failed transaction.

I see that you are still president and CEO of The Marx Group (TMG), an aftermarket marketing communications company. How do The Marx Group and Marx Group Advisors coordinate with each other and your clients?

While the business design of MGA was always to leverage the 25 plus years aftermarket experience I and my staff have from delivering targeted marketing campaigns, we have been pleasantly surprised at how well the missions of the two entities have meshed. After all, mergers and acquisitions is about marketing a company to a buyer, or marketing a company to attract those interested in selling their business. My role continues to be the chief marketing strategist for TMG marketing clients, and to be the chief strategist for selling or acquiring companies for MGA M&A clients.

My staff is very engaged and working both business models. Most important is our 100 percent commitment to the aftermarket, so we can take all of our cumulative knowledge, experience and networks to successfully bring positive results for our clients.

There is a distinctly different message and mission for both MGA and TMG. I invite you to visit both websites to see for yourself: www.themarxgrp.com and www.marxgroupadvisors.com.