DETROIT - TRW Automotive's planned purchase of a Spanish supplier is a sign of today's typical automotive acquisition - smaller than in the past but targeted for a specific goal.
In TRW Automotive's case, the acquisition of steering wheel and airbag manufacturer Dalphi Metal Espana of Madrid improves TRW's safety systems market share in Europe.
It also adds business with European automakers such as PSA/Peugeot-Citroen and Renault-Nissan.
Last month, TRW Automotive agreed to pay E113 million for 68.4 percent of Dalphi Metal Espana. The US supplier also agreed to assume debt of E84 million.
The transaction is pending regulatory approval. TRW said it expects to complete the deal in the next six months.
TRW's acquisition is the kind that makes sense in an auto industry suffering from the high cost of raw material and a slow-growth US market, says one investment banker.
Not like LucasVarity
In the past, supplier acquisitions were huge grabs for revenue and market share.
For example, TRW paid $6.6 billion for the UK car components group LucasVarity in 1999.
But that's not the kind of deal that fits anymore, says Dave Eberly, senior managing director at Beringea, a US private-equity and investment-banking firm in Farmington Hills, Michigan.
"It's a more healthy approach to M&A activity in the auto space," Eberly says. "Big deals for the sake of just raw size and scope aren't going to get done as much. In a sector with as much of a hangover as auto has right now, transactions have to make sense."
Wall Street analysts say TRW's move does just that. Its business with PSA/Peugeot-Citroen increases from 1 percent of sales to 5.2 percent, and its business with Renault-Nissan jumps from 8.4 percent of sales to 9.4 percent, according to a September 7 report by Merrill Lynch analyst John Murphy.
The move also gives TRW much-needed production capacity in Europe.
"Had we not made this acquisition, we would have had to add capacity somewhere in Europe for the business we booked," says Manley Ford, TRW spokesman. "We'll be using some of that [Dalphi] capacity for that booked business."
The move also helps TRW compete in Europe with Autoliv of Sweden and Takata of Japan.
"We see this acquisition as a solid fit with TRW's existing occupant safety capabilities," wrote J.P. Morgan Chase & Co. analyst Himanshu Patel in a report published September 8.
TRW spokesman Ford said Dalphi's plants are in areas where the company lacks a presence and labor costs are low.
Patel estimated TRW paid about seven times Dalphi's earnings before interest, taxes, depreciation and amortization for what amounts to about 70 percent of the company's shares.
Beringea's Eberly says that's not out of line.
"For logical, strategic deals, you can pay a higher multiple," he says.
TRW, of Livonia, Michigan, ranks No. 11 on the Automotive News Europe list of the top 100 global suppliers with worldwide original-equipment automotive parts sales of $11.14 billion (about E9.2 million at current exchange rates) in 2004.