Automotive Suppliers M&A & Financial Market Update

2018

M&A activity among Auto Suppliers accelerated towards the end of 2017 – the mid-market was particularly hot.

Both mid-market and mega-suppliers are using M&A to tap growth and answer strategic challenges. In 2017, more than 40% of all deals worldwide were located in Europe, highlighting the compelling opportunities that exist in the European supplier landscape. These players have excellent longstanding customer relationships, and high quality product and technology offerings. As seen already in 2016, software and electronics suppliers are acquiring to strengthen their automotive footprints, and to prepare for the autonomous driving revolution, while Chinese acquirers continue to target European assets to expand their geographic reach and footprints.

Key insights:

■■ Our global sector team observed an increase in M&A activity among Automotive Suppliers in 2017 (+4% compared to 2016). Buyers were focused mostly on small and mid-market companies: the average deal-value was €169m, while the average transaction valuation multiple was 8.8x EBITDA.

■■ Catalysts for deals included geographic growth, digital & technological capabilities, and general consolidation trends – the mid-market remains fragmented. As usual, Europe was the most popular region for acquirers, with around 43% of all reported M&A transactions, followed by Asia (27%) and North America (25%).

■■ Private Equity (PE) is an important and active market participant, seeking buy & Ferdinand Robert Schulhauser build platforms and market consolidation plays – financial investors were present Partner, Capitalmind in 22% of all deals. However trade buyers remain the main source of buy-side demand. “In 2017 we witnessed the growing importance of technology as a key ■■ Valuations for listed suppliers vary widely, depending on the market segment. catalyst for automotive supplier Electronics know-how is at the top of buyers’ shopping lists. Premium valuations deals. Both traditional suppliers are also being paid for well diversified suppliers with significant cross-sector and new market players (eg. tech competencies and longstanding and loyal customer relationships with OEMs. players) are preparing themselves for the imminent self-driving and ■■ The average valuation for the sector is 6.6x EBITDA, however Control and e-mobility era by acquiring mainly Electronics is being valued at 7.9x EBITDA, while Diversified Suppliers are being small- and mid-sized technology valued at 7.5x EBITDA, on average. leaders. We expect this trend to continue in 2018.” Automotive suppliers M&A & Financial Market Update

Trading multiples At the end of 2017, listed Automotive Suppliers were being valued at by segment 6.6x EBITDA, on average.

Earnings, sales growth and innovation are While the highly profitable Control / Electronics driving valuations, and there are considerable players are being valued above the sector differences due to the diversity of the average, other segments such as Engine Automotive Supplier landscape. Product and components and Interiors / Exteriors are technology offerings also vary widely, lagging behind their peers, either because which is in turn affecting sales growth and margins are under pressure or investors earnings. (See the valuation tables below.) don’t believe in the long-term outlook.

Chassis / Underbody: 6.2 EBITDA

Sales CAGR EBITDA m ar gin EV / Sales EV / EBIT DA EV / EBIT Chassis/Underbody EV 2015 / 2018e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e

Akebono Brake Industry Co., Ltd. 1,061 (0.2)% 6.0% 8.1% 9.0% 0.5x 0.5x 0.5x 8.2x 6.7x 6.0x 31.6x 15.9x 13.0x American Axle & Manufacturing Holdings, Inc. 4,652 16.4% 17.7% 17.8% 18.4% 0.9x 0.8x 0.9x 5.1x 4.6x 4.7x 8.5x 7.8x 8.2x Brembo S.p.A. 4,397 8.4% 19.6% 19.4% 19.5% 1.8x 1.7x 1.5x 9.1x 8.5x 7.9x 12.7x 11.9x 11.0x Dana Incorporated 5,005 4.4% 11.7% 12.1% 12.3% 0.8x 0.8x 0.8x 7.2x 6.5x 6.2x 10.9x 9.5x 8.6x F-Tech Inc. 765 6.6% 0.0% 9.5% 9.8% 0.5x 0.5x 0.4x - 4.9x 4.5x - 12.0x 9.5x Georg Fischer AG 4,833 3.0% 12.0% 12.3% 12.4% 1.4x 1.3x 1.3x 11.6x 10.7x 10.2x 16.1x 14.6x 13.8x GKN plc 6,799 5.1% 10.0% 10.8% 11.2% 0.6x 0.6x 0.6x 6.0x 5.6x 5.2x 8.1x 7.3x 6.8x G-Tekt Corporation 1,043 - 17.0% - - 0.6x - - 3.5x - - 8.8x - - Iochpe-Maxion S.A. 1,481 7.9% 11.2% 12.1% 12.4% 0.8x 0.7x 0.7x 7.1x 6.1x 5.6x 11.2x 9.1x 7.9x KYB Corporation 1,690 0.1% 0.0% 0.0% 0.0% 0.6x 0.6x 0.6x - - - 10.4x 9.8x 8.7x Mando Corporation 3,190 6.1% 5.8% 9.5% 9.6% 0.7x 0.6x 0.6x 12.3x 6.8x 6.3x 44.0x 12.1x 10.8x Martinrea International Inc. 1,333 (1.2)% 10.5% 11.2% 11.8% 0.5x 0.5x 0.5x 5.2x 4.8x 4.4x 8.6x 7.7x 6.9x Nexteer Automotive Group Limited 5,016 5.9% 16.3% 16.6% 16.8% 1.5x 1.4x 1.2x 9.2x 8.2x 7.4x 12.7x 11.3x 9.9x NHK Spring Co., Ltd. 2,008 1.4% 10.0% 9.5% 9.8% 0.4x 0.4x 0.4x 3.8x 4.3x 4.1x 6.3x 7.2x 6.7x NSK Ltd. 7,966 (0.3)% 11.4% 13.6% 14.2% 1.0x 1.1x 1.0x 8.9x 7.8x 7.2x 14.5x 11.5x 10.4x Press Kogyo Co., Ltd. 632 (0.6)% 8.9% 9.6% 10.0% 0.4x 0.4x 0.4x 4.7x 4.4x 4.0x 9.2x 7.8x 6.9x Progress Werk Oberkirch AG 279 5.0% 10.9% 11.5% 11.9% 0.6x 0.6x 0.6x 5.6x 5.2x 4.8x 12.1x 10.5x 9.6x SAF-Holland S.A. 948 3.4% 9.2% 10.4% 10.7% 0.8x 0.8x 0.8x 9.2x 7.8x 7.2x 10.3x 9.0x 8.6x SHOWA Corporation 670 (0.4)% 0.7% 11.6% 12.4% 0.3x 0.3x 0.3x 47.0x 2.8x 2.7x - 3.9x 3.8x Stabilus S.A. 2,110 16.3% 20.1% 20.4% 20.0% 2.3x 2.2x 2.0x 11.5x 10.7x 10.1x 15.8x 14.8x 13.6x Tow er International, Inc. 837 1.3% 10.6% 10.8% 11.0% 0.5x 0.5x 0.5x 4.8x 4.5x 4.2x 7.9x 7.5x 6.9x Unipres Corporation 1,066 0.7% 13.1% 13.4% 13.6% 0.4x 0.4x 0.4x 3.1x 3.3x 3.1x 5.7x 5.6x 5.2x

High 7,966 16.4% 20.1% 20.4% 20.0% 2.3x 2.2x 2.0x 47.0x 10.7x 10.2x 44.0x 15.9x 13.8x Average 2,626 4.2% 10.6% 11.9% 12.2% 0.8x 0.8x 0.8x 9.2x 6.2x 5.8x 13.3x 9.8x 8.9x Mean 1,586 3.4% 10.8% 11.5% 11.9% 0.6x 0.6x 0.6x 7.2x 5.8x 5.4x 10.6x 9.5x 8.6x Low 279 (1.2)% 0.0% 0.0% 0.0% 0.3x 0.3x 0.3x 3.1x 2.8x 2.7x 5.7x 3.9x 3.8x

Engine / Under-the-Hood: 5.7x EBITDA

Sales CAGR EBITDA m ar gin EV / Sales EV / EBIT DA EV / EBIT Engine/Under-the-Hood EV 2015 / 2018e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e 2017e 2018e 2019e

Aisan Industry Co., Ltd. 568 (2.3)% 9.5% 9.8% 9.7% 0.3x 0.4x 0.3x 3.5x 3.8x 3.6x 8.4x 8.2x 7.5x BorgWarner Inc. 10,723 5.1% 16.9% 17.0% 17.0% 1.3x 1.3x 1.2x 7.9x 7.4x 6.9x 10.6x 9.8x 9.1x ElringKlinger AG 1,863 4.8% 15.0% 15.8% 16.6% 1.1x 1.1x 1.0x 7.5x 6.8x 6.2x 12.7x 11.2x 10.0x EXEDY Corporation 1,322 1.1% 15.1% 14.5% 14.9% 0.6x 0.6x 0.6x 4.0x 4.4x 4.2x 7.3x 7.8x 7.3x Hanon Systems 5,431 3.3% 11.5% 11.9% 12.0% 1.2x 1.1x 1.1x 10.6x 9.5x 8.9x 15.3x 13.5x 12.4x JTEKT Corporation 6,056 (1.0)% 10.0% 10.0% 10.5% 0.6x 0.6x 0.6x 5.5x 6.0x 5.5x 10.2x 10.5x 9.7x Keihin Corporation 1,158 (0.3)% 13.2% 12.2% 12.6% 0.4x 0.5x 0.4x 3.3x 3.8x 3.5x 5.5x 6.6x 6.2x Linamar Corporation 3,818 13.6% 16.2% 16.6% 16.7% 0.9x 0.8x 0.7x 5.5x 4.6x 4.4x 8.1x 6.4x 6.1x Nemak, S. A. B. de C. V. 3,037 (0.3)% 16.4% 16.9% 16.9% 0.8x 0.8x 0.8x 5.2x 4.8x 4.6x 9.4x 8.5x 8.1x Rheinmetall AG 4,819 7.1% 10.3% 10.9% 11.2% 0.8x 0.8x 0.7x 7.9x 7.0x 6.4x 12.7x 10.8x 9.7x Ryobi Limited 1,217 0.2% 12.5% 12.7% 13.0% 0.6x 0.7x 0.7x 4.8x 5.4x 5.2x 12.6x 12.3x 11.5x Tenneco Inc. 3,763 2.1% 9.5% 9.7% 9.9% 0.5x 0.5x 0.5x 5.2x 4.8x 4.6x 6.9x 6.5x 6.2x

High 10,723 13.6% 16.9% 17.0% 17.0% 1.3x 1.3x 1.2x 10.6x 9.5x 8.9x 15.3x 13.5x 12.4x Average 3,648 2.8% 13.0% 13.2% 13.4% 0.8x 0.8x 0.7x 5.9x 5.7x 5.3x 10.0x 9.3x 8.7x Mean 3,400 1.6% 12.8% 12.5% 12.8% 0.7x 0.7x 0.7x 5.3x 5.1x 4.9x 9.8x 9.1x 8.6x Low 568 (2.3)% 9.5% 9.7% 9.7% 0.3x 0.4x 0.3x 3.3x 3.8x 3.5x 5.5x 6.4x 6.1x

Sources: S&P Capital IQ as of 31/12/2017; Capitalmind Analysis

2 Automotive suppliers M&A & Financial Market Update

Selected credentials in the Automotive sector

Capitalmind has extensive experience in the Automotive sector. Ferdinand Robert Schulhauser Bart Jonkman If you would like to discuss Partner Managing Partner this report in more detail or +49 611 95 15 131 +31 73 623 87 74 opportunities for your business, [email protected] [email protected] please get in touch.

Jean-Arthur Dattée Stig Madsen Lachenmeier Partner Managing Partner +33 148 246 288 +45 20 433 373 [email protected] [email protected]

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