Global suppliers are poised for M&A binge

PPG Industries Inc., Eaton Corp. and Cummins Inc. are among the automotive suppliers likely to be active buyers amid an expected wave of global consolidation, a new study says.

Already, the global supplier segment is headed toward a record 300 mergers and acquisitions this year, the consulting firm PRTM predicts, which would edge the previous high of about 275 in 2007. Deal-making is heating up after a two-year lull as access to capital improves and some larger players, along with private equity firms, size up companies still trying to recover from the downturn.

Would-be buyers want to bulk up in core product areas as automakers demand greater scale, said Dietmar Ostermann, global automotive practice leader at PRTM in Dallas. Prospective sellers want to unload noncore or low-margin businesses while shoring up their balance sheets by divesting assets.

Companies that could unload assets over the next year or two include TRW Automotive Inc., Visteon Corp., Delphi Automotive LLP and Faurecia SA, according to the report from PRTM.

In a statement, Visteon agreed that there likely will be consolidation among suppliers but declined to comment about specific business units, adding, "We have four strong product lines."

Delphi, in a statement, called it "speculative" to predict divestitures by the company.

Prices are right in many cases.

"I couldn't fathom another scenario in the next 10 years where prices [and] values would be as low as they are right now," Ostermann said. "It may have already turned," with valuations already headed higher.

The study examined the buying and selling prospects for 560 automotive suppliers worldwide based on their financial strength, product needs, past M&A strategies and other factors.

Makers of powertrains and chassis will be most active, PRTM predicts. Those segments are the most fragmented and capital-intensive, and they have the highest concentration of struggling companies as well as the greatest disparity between strong and weak companies.

Automakers' continued paring of their supply bases also is driving consolidation, PRTM said. Manufacturers generally are trimming their stable of suppliers to about 300 to 600 per vehicle. It's common for some to use more than 1,000 per vehicle today, Ostermann said.

U.S. and Japanese suppliers that aren't part of the Toyota Group will be the most acquisitive, the study predicts. Chinese and Indian suppliers also will become more common M&A players as they begin snapping up European and North American firms for their technical know-how, Ostermann said.

PRTM postulated several potential transactions:

-- Valeo SA could be among those interested in Faurecia's engine-cooling and exhaust units, both of which are likely divestiture candidates.

-- Visteon could unload its lighting or climate control units.

-- Delphi's thermal division could be sold, with China's SAIC Motor Corp. a potential suitor.

-- TRW, partially owned by the private equity firm Blackstone Group for a longer-than-usual eight years, "could be sold as a whole" or could sell some pieces, such as its suspension or steering unit.

-- Debt-heavy Schaeffler Group, which controls about 75 percent of Continental AG, could look to unload some Continental assets to pare its debt. Candidates include ContiTech, its rubber parts unit.

-- Eaton, Cummins and Robert Bosch GmbH are the most likely buyers of turbocharger and supercharger makers.

Schaeffler, TRW and Eaton declined to comment. Other companies mentioned in this story didn't respond to requests for comment.