Cross-border M&A Transactions luthar... · First signs of rewards as Mahindra Forging market cap...
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Transcript of Cross-border M&A Transactions luthar... · First signs of rewards as Mahindra Forging market cap...
Recent Developments in Cross-border M&A
Acquisitive growth in back on the agenda – M&A are on the rise, even in developing Economies.
- Rising aspirations of companies- Globalising economies- Easier access to capital including private equity
Strategic fit, robust valuation and well managed PMI are the key ingredients in making acquisitions successful.
Most value destroying mistakes in M&A are made before the deal is closed
- Specific challenges in developing economies.
M&M
Mahindra & Mahindra Other Group Companies
AutomotiveSector
FarmEquipment
InfrastructureDevelopment
SystechInformation
Technology
Group Turnover – $4.5 bn
NasikKandivli
Igatpuri
Kandivli
Nagpur
SatelliteMUSA
SUV
UV
LCV3W
MBT
BristleconeBPO
MHRIL
GESMIPL
MMFSLMahindra Inter.
MSSC
Mahindra Group
$ 1800 mn $ 1000 mn $ 720 mn$ 80 mn$ 320 mn
Trade & Fin
Zaheerabad
Accident, Inspiration, Design?
The process of creation
Challenges & next steps
The Evolution of Systech
Autocomp circa 2004…
35+ auto part makers file for bankruptcy protection in the past 18 months– Tower Automotive, Collins & Aikman, Meridian, Uni,
Boring, Trim Trends, Delphi, Visteon, Metaldyne, Oxford Automotive
2005 alone:– Standard & Poor's downgrades 25 US-based auto
component suppliers– GM - closes 11 plants & cutting 30% capacity in North
America– Lear - $750 mn 3Q loss, cut 7700 workers, closed 20 plants
-16%
-12%
-8%
-4%
0%
4%
8%
'97 '99 '01 '03 '05
All suppliers
All suppliers less Delphi and Visteon
Delphi and Visteon
-16%
-12%
-8%
-4%
0%
4%
8%
'97 '99 '01 '03 '05-16%
-12%
-8%
-4%
0%
4%
8%
'97 '99 '01 '03 '05
North American Average Profitability(1)
(12 suppliers)Asia Average Profitability(1)
(8 suppliers)Europe Average Profitability(1)
(11 suppliers)
North American Suppliers being hurt
Number of Selected US Auto Parts ManufacturersFiling for Bankruptcy Protection
0
5
10
15
20
25
30
1990-95 1996-2000 2000-05
# of firms filing bankruptcy
ThyssenKruppAutomotive AG
Probability of Default forHigh Risk Auto Suppliers
Probability of default %
Visteon
Faurecia
ArvinMeritor Inc.
Lear Pirelli
AmericanAxle
Valeo
Tenneco
Clarion Sanyo Electric.
TRW Automotive
Foster Electric
39.2
35.9
25.6
20.719.318.1
15
9.9 9.6
5.8 5.7
2.3 1.9
0
5
10
15
20
25
30
35
40
45
For some suppliers, Chapter 11 protection has become a way of life(Harvard Industries filed five times, Amcast twice in two years)
For some suppliers, Chapter 11 protection has become a way of life(Harvard Industries filed five times, Amcast twice in two years)
High Proportion Of US Auto Suppliers Bankrupt or at risk of Bankruptcy
Source: Automotive News, BCG analysis
North America Sales Growth
3.3%
8.6% 9.0%
NA EU Asia
CAGR 1998-2005
European Sales Growth
4.7%
8.1%5.0%
NA EU Asia
CAGR 1998-2005
Asian Sales Growth
6.4%
11.9%
12.5%
NA EU Asia
CAGR 1998-2005
Global Sales Growth
3.8%
8.4%11.3%
NA EU Asia
CAGR 1998-2005
Asian And European Suppliers are growing much faster than North American Suppliers
Chinese Export of Car Components FY 2006 in US$
Americas$5,722M (~42%)
Asia-Pacific$4,161M (~31%)
Australia$260M (~2%)
Africa$565M (~4%)
Europe$1,781M (~13%)
CAGR 00-05:+36%
Middle East$1,079M (~8%)
Car components total $13,567M
• Tires• Chassis, suspension,
steering, breaking parts • Interieur/electronics• Engines, powertrain,
transmission parts• Engine parts(1)
• Exterior/Body• Others
$3,321M (24%)$3,234M (24%)
$2,072M (15%)
$1,146M (8%)$755M (6%)$852M (6%)
$2,196M (16%)
China Rapidly Developing Into An Attractive Base For Automotive Sourcing
Americas$372M (~27%)
Asia-Pacific$231M (~17%)
Australia$20M (~1%)
Africa$146M (~11%)
Europe$408M (~30%)
Car components total $1,357M
• Tires• Engine parts(1)
• Chassis, suspension, steering, breaking parts
• Engines, powertrain,transmission parts
• Others
CAGR 00-04+21%
Middle East$184M (~14%)
$290M (21%)$274M (20%)$230M (17%)
$55M (4%)
$508M(38%)
Indian Export Of Car Components FY 2006 In US$
India Also Developing Into An Attractive Base For Automotive Sourcing
India Advantage: Criteria
Labour Cost Labour Cost
Processing Cost Processing Cost
Raw Material Cost Raw Material Cost
Proximity Proximity
Design Capability Design Capability
• Access to low cost skilled industrial labour
• Low Power and fuel cost • Access to low cost machinery • Access to cheap manufacturing process
• Access to low cost Steel, Castings , Forgings, Aluminum Plastics, Rubber and other raw material
• Access to low cost tooling
• Geographical proximity to a large Auto Manufacturing Location
• Logistics infrastructure and network
• Availability of Educated manpower for Design and development
• Familiarity with English language and design standards
South America• Brazil • ArgentinaMexicoEastern Europe • Czech Republic • Poland • Romania • Slovenia • Slovakia South East Asia • Thailand • Vietnam • Malaysia Africa • South Africa • Morocco India China
Competitive Advantages Low Cost Countries
Systech Space is Congruent with the India AdvantageSystech Space is Congruent with the India Advantage
Misc
Body Parts
Brake Parts
Rubber Parts
Engine Cooling
Drive Train
Electrical
Engine
Product Segments
Control Cables, Filters, Bearings, Gaskets, Die cast products etc.
Door handles, latches and locks, Door hinges, Door strikers, locks, Fuel taps, Fuel cocks, Glove box Locks/latches, Trunk locks/latches
Calipers, Actuators, Discs, Cylinders, Actuators etc.
Hoses, Weather strips, Mountings, Seals, bushes for suspension, "O" rings
Radiator Caps, Pumps, Radiator and radiator components
Transmission Components, Axle Components, Propeller Shafts
Starter Motors, Alternators, Wiring Harness and Lamps
Fuel Systems, Pistons, Shafts and Rods, Valve Trains
Key Components
Advantage India = Domain Systech
India Advantage: Design & Engineering
Number of Engineering Graduates per Year (000)
27
251
598
1078
1337
Poland
Thailand
Brazil
India
China
Visteon , Honeywell ◐Czech Republic / Poland
GM◐Brazil
Johnson Control , GM, Ford, Delphi
◕India
NA◔South Africa
Toyota, Honda ◔Thailand
Valeo, Mando, Nissan, Koito, Volkswagen, Honda
◔China
Examples Number of design centers set up by Global Majors
Country
HighLow
Source : Vision 2015 for Indian Auto Component Industry By ACMA, Websites of Global Auto Comp companies
M&M
Automotive Farm Equipment SYSTECH
Engineering Design
Styling
Assembly
Testing
Marketing / Sales
Gear Manufacturing
Transmission / Axle
Sheet Metal Stamping
Foundry
Engineering Design
Styling
Assembly
Testing
Marketing / Sales
Gear Manufacturing
Transmission / Axle
Sheet Metal Stamping
Foundry
Purchasing Purchasing
MES
Conception
M&M
Automotive Farm Equipment SYSTECHEngineering Design
Styling
Assembly/Mfg
Engine/transmission
Marketing / Sales
Purchasing
Gear Manufacturing
Drive Train / Axle
Sheet Metal Stamping
Foundry
Engineering Design
Styling
Assembly/Mfg
Engine/transmission
Marketing / Sales
Purchasing
Gear Manufacturing
Drive Train / Axle
Sheet Metal Stamping
Foundry
Adolescence
MES
SSBUSSBU
M&M
Automotive Farm Equipment SYSTECH
Styling
Assembly
Testing
Marketing / Sales
Gear Manufacturing
Transmission / Axle
Sheet Metal Stamping
Foundry
Styling
Assembly
Testing
Marketing / Sales
Gear Manufacturing
Transmission / Axle
Sheet Metal Stamping
Foundry
Purchasing Purchasing
SSBU
ACBU
Forging
Sheet Metal Stamping
Foundry
Gear Manufacturing
Growing up
Engineering Design Engineering Design
MES
Mission Statement
To create India’s most Valuable, Innovative,“Art to Part” auto component entitythat partners with its global customersto meet & surpass their business needs
Bride HuntingHired a modest matchmakerCore team scouted the marketWhittled down options using specified criteria (content not form)Evaluated possible spousesFell for two
CourtshipOne unwilling, the other played hard to getSold the Indian Blue Blood connection
Royal Alliances – German Empire (Jeco/ Sch) I
Mar’05Mar’05
Mar’05 –Jan’06Mar’05 –Jan’06
Jilted (Again!!!)Thick skin helps in deal making
Continuing the affairThe way to the heart is through “market cap”
Marriages : “Can’t Buy Me Love”JecoSchoneweiss
NavratnasSystech. M&A cell. Legal. Kotak. M&A International. MTJ. Stokes technical team. Corp Fin. Evironmentalauditor
Royal Alliances – German Empire (Jeco/ Sch) II
Mar’06Mar’06
May’06May’06
Oct’06Oct’06
DOWRY
Low cost entry
Size + Momentum
European beach head + Management + Technology
Customers + Aerospace entry
Foothold + Technology + Scale + Management + IPR
Niche products + Leadership
Entry+ Technology + Leadership
“BLESSINGS” OF POLYGAMY!
The Systech VECTOR
Vision
Entrepreneurial culture
Customer – Acquisition and Satisfaction
Team building across geographies and Cultures
Out of the box thinking
Risk-taking - calculated
282930010203040506070809101112242526272728192021222324
September
October
SSBU conveys rumor
The
Cast
ings
Sto
ry Contact with Principal & PE fundLunch with Hitachi directorsIn principle clearance from Anand
M&A team + I-bank + Systech huddle
PE exclusivity expiresNon-binding LOI signedDD commences, competitive bid received
Plan B, if board rejects “hostile” bidM&M Board conditional approvalBack to drawing board
NovemberM&M Board approval
Deal closed, private equity backing arranged
Entrepreneurial Culture – Never Say Die
Approach
Focus on key accounts
Cross selling across verticals
– e.g.Benteler, Eaton
Moving up the Value chain
– e.g. machining, assembly etc.
Derisk by focusing on non auto business and exports
Customer Centricity
People
Install HL as sector President !!
Recruit Shakti from FES for M&A
Hire Ashwani from Godrej Customer Service with manufacturing experience from Bharat Forge for Marketing
Took Prashant from FES Engine Development for Business Development at MES
Process
Beg, borrow, steal
Handpicked core team for compatibility
Converted some workhorses into thoroughbreds
Attracted talent for a cause not the job
Used retirees from M&M/ Tata Motors as stop gap
“Boundarylessness”
Team Building
Building the Business
M&A BoutiquesBuying a company 5 times our sizeIntegration Pre-AcquisitionTata Stub Axles• Mahindra Forgings Customer or Mahindra
Gears Customer?
SSBU Cost Center or Profit Center?
Financing it
Innovative Deal Structuring – Demergers, Cross-border mergersAligning interests – Jeco SwapUsing newly created currency
Out of the box thinking
) )))
Hired a team for projects/ machine refurbishment without a site finalised
Bought 2 large companies in Germany instead of one
Bought DGP Hinoday – without minority partners concurrence
Leap of faith
Risk Mitigation
First signs of rewards as Mahindra Forging market cap increases from $70 million to $500 million
Continuously wooed companies which fitted our strategy
Acquired companies with pedigree who brought in domain knowledge & management band width
Risk-taking
Key Challenges & Systech Responses I
Choose healthy companiesConvert management to M&MNo auctionsLow multiples
M&A Strategy
Pre sold to the Group Management BoardStrategy
Cause, Passion, Innate capabilitiesTeam
The thrill of the size of challengeVision
ResponseChallenge
Key Challenges & Systech Responses II
WIPPMI
Will flow to the highest returnSurplus does not belong to businessInnovative financing: LBO using listed stock as
currency
Capital Allocation
Businesses are both empowered and responsibleRisk/ Ownership
Vertically focussed teamsTime lines dictated by business needs
M&A Process
ResponseChallenge
PMI: Governance
BEFOREM&M
MFLM&M: 47%
Others: 53%M&M: 100% M&M: 67%
Scholz: 33%M&M: 100%
SCH JECO STOKES
AFTER
M&M: 61%Scholz: 12%Others: 27%
MFL: 100% MFL: 100% MFL: 100%
SCH JECO STOKES
MFL
M&M
$780Million
MSAT
SSBU ACBU MES
MES+ Acqn
$ 10 Million
STEELMUSCO
$ 120 Million
Foundry Unit+ Acqn
$ 0
Sheet MetalKanhe, PSSL, Rudrapur
$ 30 Million
Forging + Acqn, Amforge, UK, Forge, Vauxhall, m/c
$ 40 Million
COMPOSITESSiroplast + Acqn
$ 5 Million
Gear UnitSAR Auto + Acqn
$ 10 Million
$215 Million
SYSTECH
Starting Out……Getting There.
STEEL
$ 155 Million
CASTINGS
$ 50 Million
COMPOSITES
$ 10 Million
GEARS
$ 15 Million
$ 25 Million
MES
STAMPINGS
$ 40 Million
FORGINGS
$ 485 Million