Auto News

Car suppliers stage a wave of M & A transactions for ICE vehicles in the year of dusk

Companies that rely on internal combustion engines for their business have several options. Sell ​​out to private equity firms or competitors suitable for the EV era, or develop or acquire technologies that make your business more relevant to the global pivot. For battery-powered transportation.

EV sales more than doubled last year to 6.6 million units, approaching 9% of the global automotive market. If companies in the industry aren’t big on EVs, their businesses will slowly decline and stock prices will follow suit.

Private equity companies are familiar with managing this type of business. They come in, reduce costs, and perhaps unite the company with others in the same field, running out of operating time with a focus on cash flow. Consumers will continue to buy and maintain combustion vehicles for years to come, so it may take some time for these businesses to go bankrupt completely. They only buy small quantities each year.

Apollo’s $ 1.6 billion deal with Tenneco A classic private equity takeaway. Tenneco manufactures aftermarket components and has two main units that manufacture powertrains and emission components. Over 80% of revenue comes from these two business lines. Tenneco owns the aftermarket parts business of former Federal-Mogul. Acquired in 2018 with a $ 5.4 billion transaction It is full of familiar brand names such as Champion Spark Plugs.

The American axle is in a similar position. The company says EV parts and systems account for 35% of backlogs, but Credit Suisse analyst Dan Levy said last week that a full transition to EVs was still questioned and margined. I wrote that it could put pressure on me. If he is right, Detroit-based suppliers may have a hard time staying in the public market. The $ 357 million free cash flow generated last year is also perfect for private equity buyers. Levy expects this number to rise to about $ 400 million in 2023.

Allison Transmission may be another candidate. Medium and heavy truck suppliers recently announced a partnership with Jing-Jin Electric in China to work with the electric motors and inverters needed for EVs. However, the agreement is still a year old, and the company continues to rely heavily on internal combustion engines. Like American Axle, Allison has healthy cash flow.

There are also some small transactions that can occur. Large suppliers with growing businesses for EVs are leveraging either the internal combustion engine assets or the spare parts business. For example, BorgWarner Inc. has an expanding electronics propulsion business and an older aftermarket parts business that generated only $ 583 million of last year’s $ 14.8 billion in revenue.

For the time being, capital markets have cooled trading. When interest rates rise, debt issued to LBOs may be traded at a discounted price by the time the transaction is completed. But be careful when interest rates stabilize. We were able to see the next stage of the turbulence from the electrical revolution.

Automotive News contributed to this report. Car suppliers stage a wave of M & A transactions for ICE vehicles in the year of dusk

Back to top button