June 2015 Sector Update
Automotive & Auto Aftermarket Investment Banking
Todd Cassidy [email protected] +1 312 364 5164
Philipp Mohr [email protected] +49 69 509527 610 Trends affecting M&A in the Automotive andThe Aftermarket Deal sectors Engine
William Blair’s investment banking group combines signi�icant transaction experience, rich industry knowledge, and deep relationships to deliver successful advisory and �inancing solutions to our global base of corporate clients. We serve both publicly traded and privately held companies, executing mergers and acquisitions, growth �inancing, �inancial restructuring, and general advisory projects. This comprehensive suite of services allows us to be a long-term partner to our clients as they grow and evolve. About William Blair From 2010-2014, the investment banking group completed more than 330 merger-and- Investment Banking acquisition transactions worth $73 billion in value, involving parties in 36 countries and �ive continents, was an underwriter on more than 20% of all U.S. initial public offerings, and raised nearly $100 billion in public and private �inancing. William Blair & Company
Table of Contents
Executive Summary ...... 1 Recent Automotive & Aftermarket Transactions ...... 8 Select Automotive & Aftermarket Transactions ...... 9 Automotive & Aftermarket Contacts ...... 10 Global Automotive & Aftermarket M&A Activity ...... 11 Annual M&A Trends ...... 11 Participant Trends ...... 12 Notable Recent Automotive & Aftermarket Transactions ...... 13 Leveraged Finance Market Update ...... 15 Public Comparable Performance & Trends...... 18 Public Comparables by Segment ...... 18 Automotive Public Equity Performance ...... 20 Historical Public Automotive TEV/ LTM EBITDA by Sub-Segment (Trailing) ...... 21 Historical Public Automotive TEV / NTM EBITDA by Sub–Segment (Forward) ...... 22 Public Comparables Company Trading Statistics ...... 23 Notes ...... 25 Disclosures ...... 26
Automotive & Aftermarket Investment Banking Table of Contents
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Executive Summary
The Deal Engine
Secular “Mega-Trends” are Driving a Vibrant M&A Market for the Automotive Supply and Aftermarket Sectors – Both Multiples and Volumes Approach All-Time Highs The deal-making environment in the automotive supply industry is propelled by a desire for growth in what has historically been a cyclical market place, but is shaped M&A Snapshot by forces that are pulling on both ends of the rope, at times. Suppliers chase the two primary growth levers, unit volumes and pricing, the former a function of customer EBITDA multiples reach demand and the latter highly correlated to increased technological content. From a ~7.0x 10-year highs (higher cyclical perspective, the automotive industry faces plateauing unit growth in the yet in the aftermarket) important mature markets in Europe and North America, but is poised for strong growth in emerging markets. The automobile is a laboratory for technological Increase in total innovation. Technology included today provides enhanced features and benefits to +335% transaction value from the end-consumer and auto manufacturer alike. There is a natural push-pull as 2013 consumers desire smarter, more-connected cars that results in more content, and weight, being packed into each vehicle, while heightened emissions standards call for +13% Increase in number of material and structural changes to lighten vehicles. At the same time as vehicle transactions completed platforms, and the auto industry as a whole, becomes more global and units per from 2013 platform increase, production becomes localized with smaller volumes being produced in each facility. Supply vs. Aftermarket: Lines Blur But Important Differences Remain The automotive supply and aftermarket is a complicated and connected marketplace. When analyzing how these trends are shaping the transaction environment in the automotive industry, it is important to identify the differences – and, increasingly, the similarities – between the original equipment (“OE”) suppliers and aftermarket companies. There is a large area of crossover between the two groups, particularly when it comes to end application, technology, and production process. This area of overlap has increased in recent years as the OE supply market has adopted some of the practices of the aftermarket, and vice versa. Despite this blurring of lines, important differences between “typical” OE supply and aftermarket companies still exist, and most companies will tend to align much more closely with one end of the spectrum or the other. Where a company’s business model falls along the OE supply/aftermarket spectrum will determine how the deal-making trends discussed in this document affect the company. These key aspects and differences in business model also have a substantive impact on valuations assigned in the transaction market.
OE Supply / Aftermarket Spectrum
Production Processes Technology and R&D Customers Business Model Internal OE Supply Vertical (or semi-vertical) Critical for success Major original equipment B2B Processes integration Patents manufacturers (OEMs) Heavy manufacturing Proprietary products or Large Tier 1s Assembly processes
Aftermarket “Asset-light” production Consumer driven product Retailers B2C Limited manufacturing development planning Distributors Some B2B Light assembly Rapid response to market Installers conditions –“Fast End-users followers”
Sales Channels Footprint Marketing & Advertising Sourcing
External OE Supply Direct Sales Global scale is important Brand has limited Components Presentation relevance Basic raw material inputs Limited marketing
Aftermarket OEMs through service Currently mostly regional Brand is featured Major modules Internet Globalization increasing in Heavy marketing to drive Finished parts Distributors importance consumer awareness Retailers
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Amid this dynamic environment, we examine the trends influencing M&A and financing activity in the automotive supply industry.
Aftermarket Deal Drivers While this report primarily focuses on trends shaping the deal-making environment for original equipment suppliers, our November 2014 report looked at the trends affecting the auto aftermarket: As mileage plateaus, brand importance to the market grows With cars getting older, aftermarket suppliers get more attractive China doesn’t have a developed aftermarket… for now Technology content is king Potential verge of consolidation wave as Tier 1s warm up to the aftermarket To access our November 2014 report, “Highlights From SEMA and AAPEX: What’s Driving the Auto Aftermarket Deal-Making Environment?”, contact Todd Cassidy ([email protected]; +1 312 364 5164)
M&A Drivers In an ecosystem as complex and globally expansive as the automotive industry, myriad strategic and economic forces combine to drive M&A activity. Based on our conversations with leading automotive industry executives and private equity firms, recent transactions we have completed, and insight from numerous industry events attended, we identify the trends that are currently having the greatest impact on acquisition activity and valuations within the OE supply sector.
Cyclical18.020.0 Pressures in Mature Markets Place Heightened Focus on Inorganic Growth 12.014.016.0 10.06.08.0 Although0.02.04.0 it is impossible to predict when a peak will occur, vehicle sales in North America and other developed markets appear to be nearing their historical natural barriers. While we remain bullish on continued unit growth due to supportive underlying demand and availability of consumer capital, after several years of steady post-recession growth, the merry-go-round will eventually slow and organic growth for the automotive industry will become increasingly hard to come by in mature markets.
North American Car and Light Truck Builds
(units in millions)
20.0 18.6 19.0 19.0 17.9 18.3 18.0 17.0 17.4 16.1 16.0 15.4 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0
Recessions Forecast North American Car and Light Truck Builds (millions) Source: IHS Automotive as of May 2015, WardsAuto.
As a result, automotive companies are looking to generate growth by broadening their product portfolios (i.e., increasing the amount of value-added content in vehicles), essentially augmenting their research and development efforts through acquiring technology, or through pursuing access to markets which they have historically not served. Smaller Tier 1 and Tier 2-3 suppliers that can help larger players achieve either of these objectives have been very attractive sources of inorganic growth. Push to Lead The Pack on Mega-Trends of Fuel Efficiency, Lightweighting, And Autonomous Driving It is a safe bet that any presentation by an automotive industry executive this year will include mention of the need to develop more fuel-efficient engines, the imperative of creating lighter components, and the push toward autonomous driving. External pressures such as the mandated changes in Corporate Average Fuel Economy (CAFE) standards in the United States set to rise to over 55 miles per gallon in 2025 (up from 38.6 mpg combined in 2016), automakers face intense pressure to invest in technology that improves fuel efficiency and reduces emissions. The race to meet these standards becomes even more challenging given all of the additional content being packed into smarter, more connected cars. Every additional airbag, driver assist feature, and
Automotive & Aftermarket Investment Banking 2 Executive Summary
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backup camera added for safety; and premium sound system, hands free microphone, heated/cooled seating system, and Bluetooth receptor, desired by consumers and enhancing the driver experience, adds mass to today’s increasingly dense vehicles.
U.S. CAFE(1) Standards
Passenger Car Light Truck Combined (miles per gallon) (miles per gallon) (miles per gallon)
60.0 55.3 60.0 60.0 55.0 55.0 55.0 48.7 50.0 50.0 50.0 44.2 45.0 45.0 45.0 38.2 39.3 38.3 40.0 40.0 40.0 34.3 35.0 35.0 30.6 35.0 28.9 30.0 30.0 30.0 25.0 25.0 25.0 20.0 20.0 20.0 2016 2020 2025 2016 2020 2025 2016 2020 2025 Source: The National Highway Traffic Safety Administration (NHTSA) and the U.S. Environmental Protection Agency (EPA). (1) Corporate Average Fuel Economy (CAFE).
This has created new pressures and opportunities to remove weight from the vehicle by using lighter materials wherever possible. The use of carbon fibers and other composite materials in vehicles is expected to increase dramatically over the next decade. The need to reduce weight has changed the economics around aluminum and other lightweight materials that were previously considered to be too expensive for widespread use in vehicles. Ford’s 2015 model year F-150 is one of many new aluminum-body vehicles to hit the market.
Automotive Composite Volumes
Advanced Composites Composites Components Components (in millions (pounds) of pounds) 120.0
100.0 Today 80.0
60.0
40.0
20.0
0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Identified Composites Volumes Potential New Models Unidentified Luxury Sedans Unidentified Supercars(1)
Source: Composites Forecasts and Consulting (July 2013), www.compositesworld.com. (1) Unidentified supercars, at less than 1/10th of a percent of the total, are not visible in the chart.
The themes of fuel efficiency, lightweighting, and autonomous driving are shaping the acquisition appetites of large suppliers and financial sponsors. U.S. Manufacturing Corporation’s proprietary VARI-LITE® extrusion process, a technology replacing constant wall thickness parts, with variable thicknesses, thereby reducing mass, was a very attractive acquisition target for Wynnchurch Capital. Wynnchurch, rightly identified the market need for this common sense lightweighting technique and the unique process technology U.S. Manufacturing possessed to deliver these type of parts. William Blair & Company served as financial advisor to Wynnchurch on the $207.5 million debt raise to complete the acquisition in June 2014. Another example of M&A as a platform to gain technology, is one of the largest announced automotive M&A transactions of 2014, ZF Friedrichshafen’s announced acquisition of TRW Automotive in September 2014. This deal was driven largely by ZF’s desire to expand its portfolio to sensors and other safety related technologies – these technologies are vital to automated driving a major trend in the industry. The deal had very little overlap from a product standpoint – it has win-win potential for both ZF and TRW.
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Suppliers Forced to Think Global As vehicle sales in developed markets begin to level off, growth in China and other emerging markets continues to surge. The growing importance of emerging markets and automotive companies’ shift toward global platforms are major drivers of M&A activity.
International Opportunity
Market Size and Production Volume Growth Historical China Automotive Acquisitions (units in thousands) (number of deals)
30,000 25 22
25,000 Europe 20 20,000 Greater China 15 15 13 15,000 10 9 North America South Asia 10 10,000 Japan / Korea 6 6 4 4 5 3 5,000 2 South America Middle East / Africa 0 0 (2.0%) 0.0% 2.0% 4.0% 6.0% 8.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
Source: IHS Automotive as of May 2015. Source: Dealogic as of 5/31/2015.
The increased deal activity involving Chinese companies is flowing in both directions. Chinese companies have become aggressive players as they look to acquire technologies – especially ones that reduce emissions – needed by the rapidly growing Chinese automotive market. This dynamic was at work in Aviation Industry Corporation of China’s (AVIC) May 2014 acquisition of Germany- based Hilite International. Conversely, international companies are looking to gain a foothold in China’s attractive growth market by forming joint ventures with, or even acquiring, Chinese companies. In April 2015, William Blair advised on the divestiture of Performance Fiber’s Chinese tire cord fabrics, fiber operations, and brand name, to Indorama Ventures, a listed public company in Thailand. The deal expanded Indorama’s exposure to the higher growth Chinese market. Indorama has been aggressive in expansion through the acquisition of international assets. William Blair also completed a $795 million disposal of Old World Industries’ ethylene glycol and ethylene oxide production assets to Indorama in 2011. Every major automotive manufacturer has continued down the path of platform consolidation, resulting in fewer platforms and higher volumes per platform. Production of these global platforms, however, has become increasingly local. As a result, manufacturers often require their suppliers to have production and distribution capabilities wherever these platforms are produced. The need for suppliers to expand their global capabilities was a major driver of Hitachi Metals’ August 2014 acquisition of Wisconsin- based Waupaca Foundry. The $1.3 billion dollar acquisition moves Hitachi Metals from a niche producer, to company with eight times its current production capacity.
Platform Consolidation
26 27 18 15 (1) (2) (3) 8 9 7 8 7 2
'14 '25 '07 '16 '13 '18 '15 '22 Today Today Current / Historic Future Source: Company filings and William Blair research. (1) Estimated. (2) Estimated, expected to decrease with the CMF platform. (3) Estimated, expected to decrease with the new TNGA platform.
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Tier 1s Get Defensive and Turn Attention to Aftermarket Tier 1 OE suppliers have become increasingly interested in moving into other sectors, specifically the automotive aftermarket. Having learned painful lessons from the recession, Tier 1s now view aftermarket suppliers as a valuable defensive piece of the portfolio. In a downturn when consumers’ ability to purchase new cars drops precipitously, drivers will still need to service existing vehicles. Tier 1s have traditionally viewed the production methods used by aftermarket suppliers as less advanced than methods used by OE suppliers. Tier 1s have begun to realize, however, that the aftermarket’s “low-tech” methods – featuring batch or cellular production runs – can generate substantial margins and are themselves high barriers to entry for competitors. Federal-Mogul has long recognized the value of these two distinct channels to market. Earlier this year, the Company cancelled its announced spin off of its two core businesses, Powertrain and Motorparts (aftermarket), electing to keep the Company as one platform. It was deemed strategically important to keep Motorparts to allow for the integration of its recently completed brake component, chassis and valvetrain acquisitions and to recognize the benefits of the strategic initiatives in the Motorparts division. The spin is still on the table for another time, but Federal-Mogul’s acquisitions into the division and retention of the business demonstrates its strategic importance. Private Equity Targets Automotive and Aftermarket Suppliers Private equity interest in the automotive industry ground to a halt during the recession of 2008-2009. Since 2010 sources of debt and equity capital have returned to a sector, dubbed by two U.S. presidents as “too big to fail.” But as the industry has regained its momentum over the past several years, and clear winners have been separated from superfluous companies that didn’t have compelling reason to exist, private equity firms have once again begun targeting automotive suppliers. Financial sponsors have been attracted to opportunities to purchase sub-scale businesses or corporate orphans and build them into platforms that would be attractive to larger private equity players or strategic acquirers.
PE Value Creation Family Tree
Tomkins Plc Case Study
Seven divestitures to Three have traded a Substantial value increase private equity second time over original acquisitions
Target: Acquirer: H.I.G. Capital Target: Acquirer: Sterling Group Closed Date: 06/19/08 Closed Date: 11/01/12 Value: Not Disclosed Value: $360 mm “FIRST GENERATION”
Target: Acquirer: Industrial Target: Acquirer: Eigen Capital deal value Growth Partners Closed Date: 04/20/11 $1.36 B Closed Date: 10/27/11 Value: $80 mm Value: Not Disclosed 5 disclosed transactions
Target: Acquirer: Kohlberg & Co. Target: Acquirer: Madison Target: Acquirer: Sterling Group Closed Date: 06/29/07 Dearborn Partners Closed Date: 08/02/11 Value: $110 mm Closed Date: 09/30/14 Value: $290 mm Value: $520 mm
“SECOND GENERATION”
Target: Acquirer: Crowne Group Target: Acquirer: Sensata B.V. Target: Acquirer: Crestview deal value Closed Date: 09/30/14 Closed Date: 10/14/14 Partners / CITIC Capital $1.54 B Value: Not Disclosed Value: $1,000 mm Closed Date: 09/30/14 Value: $510 mm 2 disclosed transactions
Denotes private equity transaction.
Source: Capital IQ.
An interesting case study in wealth creation was Tomkins plc’s strategic decision to exit portions of the vehicle supply market. Over a five year period Tomkins sold seven different businesses all to private equity owners. The aggregate disclosed value of five of the seven deals was $1.36 billion, since that time, three of those seven have sold for a second time, two were disclosed at an aggregate
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value of $1.51 billion. The remaining assets possess top tier manufacturing, substantial brand recognition in the market, and will generate a large amount of incremental value when they ultimately transact. Strategics Look to Streamline During the years following the recession, large, diversified suppliers hunkered down and focused on shoring up their businesses. Now that these firms and the automotive industry are on firmer ground, large suppliers are taking a close look at their portfolios, much like Tomkins did from 2007-2011, and deciding which business lines they want to be leaders in – and which ones they want to exit. For example, Johnson Controls and Visteon announced plans to divest their automotive interiors businesses. Johnson Controls ultimately sold its interiors segment to Yangfeng Auto Trim and Visteon, its interior business, to Reydel Automotive Holdings, a subsidiary of Cerberus Capital Management. For Johnson Controls this was the culmination of a longer term strategy to shift focus from auto toward its other non-auto business lines. For Visteon it was an optimization of its automotive portfolio, preferring to devote resources to its higher growth and profitable cockpit electronics products such as instrumentation clusters and infotainment displays. It will not be unexpected to see this wave of corporate portfolio rationalizations and divestitures continuing as diversified suppliers concentrate their energy on their highest-margin businesses.
Strategic Shift Underway – Recent Landmark Divestitures
Seller Announce Date: 1/13/2014 Seller Announce Date: 12/17/2014 Seller Announce Date:1/6/2015 Seller Announce Date: 4/16/2015
Transaction Value: $265 M Transaction Value: $3,600 M Transaction Value: ND Transaction Value: CAD$530 M Acquirer Sold: Halla Climate Interest Acquirer Sold: Interiors Division Acquirer Sold: Electronic Business Acquirer Sold: Axel Tech Strategic
Seller Announce Date: 1/7/2014 Seller Announce Date: 2/19/2014 Seller Announce Date: 2/19/2015 Transaction Value: $160 M Transaction Value: ND Transaction Value: $730 M Acquirer Sold: Industrial Brake & Friction Acquirer Sold: Interiors Division Acquirer Sold: Thermal Systems Business
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 2015 2014
Seller Announce Date: 1/22/2014 Seller Announce Date: 5/26/2014 Seller Announce Date: 9/10/2014 Seller Announce Date: 5/19/2015 Transaction Value: $150 M Transaction Value: $66 M Transaction Value: $385 M Transaction Value: $600 M Acquirer Sold: Global Chassis Business Acquirer Sold: Wiring Business Acquirer Sold: Engine Components Acquirer Sold: Automotive Business
Seller Announce Date: 5/8/2015 Transaction Value: $257 Acquirer Sold: Wells Manufacturing Financial/ Regulatory
Source: Capital IQ.
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Contact Us to Learn More We will continue to closely monitor these trends and provide updates on how they are influencing the M&A and capital-raising environment for the automotive OE supply and aftermarket sectors. If you would like to discuss any of these trends in more detail, please do not hesitate to contact us.
Automotive and Aftermarket Investment Banking Todd Cassidy [email protected] +1 312 364 5164
Todd Cassidy heads William Blair’s automotive and aftermarket investment banking. He has successfully advised public and private companies on mergers and acquisitions and capital raisings, including Challenge Mfg’s growth financing, Qualitor Inc.’s sale to Wellspring Capital; Old World Industries’ divestiture of its chemicals division to Indorama Ventures PLC; JAC Product’s sale to Wynnchurch Capital, Gabriel Ride Control’s sale to MAT Holdings; and Fox Factory Holding’s initial public offering. Mr. Cassidy focuses on the automotive supply chain and aftermarket, as well as the on- and off-highway commercial vehicle sector. Before joining investment banking, Mr. Cassidy saw the automotive industry from the inside out, working in product planning, program management, and engineering roles at Ford Motor Company. At Ford, Mr. Cassidy worked on new product programs and product development. He also held engineering positions at DaimlerChrysler and Boeing. Education: B.S. in mechanical engineering and B.A. in philosophy, University of Notre Dame; M.S. in mechanical engineering, University of Michigan; M.B.A., Harvard Business School.
Todd Cassidy Head of Automotive & Aftermarket Banking +1 312 364 5164 [email protected]
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Recent Automotive & Aftermarket Transactions
Not Disclosed William Blair acted as exclusive financial advisor to Performance Fibers in connection with its sale of its Chinese tire cord fabrics, fiber operations, and brand name to Indorama Ventures has divested its Performance Fibers is a global manufacturer of industrial polyester fibers and fabrics with operations in Asian Operations and Brand Name to North America, Europe, and Asia Indorama Ventures Indorama Ventures is one of the world’s leading petrochemical producers and a leading global April 2015 manufacturer of wool yarns
Not Disclosed William Blair acted as financial advisor to DrivenBrands, a portfolio company of Harvest Partners, in connection with its sale to Roark Capital Group Driven Brands is a collection of branded automotive service franchises, including MAACO, Meineke, has been acquired by Merlin, Drive N Style, Econo Lube N’ Tune, Pro Oil Change, and America’s Service Station Roark Capital Group Roark Capital Group is an Atlanta-based private equity firm with over $6 billion in equity capital April 2015 commitments since inception. Roark focuses on middle-market investment opportunities
$822,310,087 William Blair acted as Underwriter on Mobileye’s follow-on equity offering Mobileye develops software algorithms, system-on-chips and customer applications that are based on processing visual information for the driver assistance systems (DAS) market Mobileye’s proprietary software algorithms and EyeQ® chip perform detailed interpretations of the visual Follow-on Offering field in order to anticipate possible collisions March 2015
Not Disclosed William Blair acted as financial advisor to Qualitor, Inc., a portfolio company of HCI Equity Partners and Baird Capital Partners, in connection with its sale to Wellspring Capital Management Qualitor is a leading global supplier of branded components to the automotive aftermarket. The company has been acquired by sells two major categories of components: brake hardware and windshield wipers Wellspring Capital Management Wellspring Capital Management, founded in 1995, is a middle-market private equity firm that has October 2014 approximately $3 billion of private equity capital under management
Not Disclosed William Blair acted as financial advisor to Wheel Pros LLC, a portfolio company of Platinum Equity, LLC, in connection with its sale to Audax Group, Inc. Wheel Pros is a leading national supplier, marketer, and distributor of branded aftermarket wheels for has been acquired by light vehicles. Wheel Pros’ strong market position is built on its ownership of industry leading brands Audax Group leveraged by superior brand management and marketing
June 2014 Audax Private Equity is a private equity firm focused on providing equity capital for middle market management buyouts and for companies needing capital for expansion. Audax is an active, long-term investor across a broad range of industries
$207,500,000 William Blair acted as the exclusive placement agent and advisor to Wynnchurch Capital on a unitranche debt financing related to its acquisition of U.S. Manufacturing Corporation A portfolio company of U.S. Manufacturing Corporation is a premier manufacturer of highly engineered extruded products that Wynnchurch Capital are characterized by their superior value, weight reduction and strength for a variety of industrial Unitranche Credit Facility markets
June 2014 Wynnchurch Capital, headquartered in Rosemont, Illinois focuses on investments in niche manufacturing, business and industrial services, energy and power services, logistics, transportation, and value-added distribution
Automotive & Aftermarket Investment Banking 8 Recent Automotive & Aftermarket Transactions
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Select Automotive & Aftermarket Transactions
Not Disclosed Not Disclosed $230,000,000 $822,310,087 Not Disclosed
has divested its Asian Operations and has been acquired by Brand Name to Secured Credit Facilities Roark Capital Group Follow-on Offering Valuation Indorama Ventures Equipment Lease April 2015 April 2015 March 2015 March 2015 November 2014
Not Disclosed $1,023,183,750 Not Disclosed $207,500,000 $89,125,000
A portfolio company of has been acquired by has been acquired by Wynnchurch Capital Wellspring Capital Initial Public Offering Audax Group Unitranche Credit Facility Follow-on Offering Management October 2014 August 2014 June 2014 June 2014 July 2014
$400,000,000 Not Disclosed $147,857,145 Not Disclosed $325,000,000
has been acquired by has been acquired by Senior Secured Notes Wabtec Corporation Initial Public Offering Senior Secured Notes Debt Placement Sumitomo Corporation October 2013 September 2013 August 2013 March 2013 March 2013
Not Disclosed Not Disclosed $795,000,000 $77,400,000 $209,931,000
A division of Old World Industries, Inc. (dba PEAK) has been acquired by has been acquired by has been acquired by
MAT Holdings, Inc. Snow Phipps Group, LLC Indorama Ventures PLC Initial Public Offering Fairness Opinion
December 2012 July 2012 March 2012 May 2011 December 2010
Not Disclosed Not Disclosed Not Disclosed Not Disclosed Not Disclosed
a portfolio company of Mason Wells has been acquired by has been acquired by has sold certain assets to has been acquired by has been acquired by Wynnchurch Cyltec LLC Thor Industries Pritzker Group Highlander Partners Capital, Ltd. via MJ Acquisitions December 2010 December 2010 March 2010 January 2009 June 2008
$1,015,000,000 Not Disclosed $38,000,000 $245,600,000 Not Disclosed
has been acquired by has been acquired by has been acquired by has been acquired by has been acquired by Otto Sauer Bridgestone Americas Achsenfabrik Measurement Reliance Steel & Endeavour Capital and Holding, Inc. GmbH (SAF) Specialties Inc. Aluminum Co. Norwest Capital May 2007 December 2006 April 2006 July 2003 February 2000
Automotive & Aftermarket Investment Banking Select Automotive & Aftermarket Transactions 9
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Automotive & Aftermarket Contacts
Global Team
Todd Cassidy Philipp Mohr Head of Automotive & Aftermarket Global Head of Industrials Education: Harvard (MBA) Education: Hamburg (PhD) Michigan (MSE) Cambridge (MPhil) Notre Dame (BS/BA) Hamburg (BA)
Location: Chicago, IL (U.S.) Location: Frankfurt (Germany) Contact Info: [email protected] Contact Info: [email protected] +1 312 364 5164 +49 69 509527 610
Automotive Segment Focus
OE Suppliers Aftermarket Body & Chassis Powertrain Interior / NVH Asset Light Business Models Brakes Appearance Parts Fuel Efficiency Systems Consumer Products Oriented Exterior Components & Technology Functional Systems Models Structures Power Generation Materials Distribution Steering Franchise Models Suspension Non-Discretionary Replacement Products Fluid & Air Systems Safety & Electronics Air and Fluid Active and Passive Vertically Integrated Management Occupant Protection Manufacturers Vapor Management Power Management / Energy Storage Sensors “Smart Systems”
Automotive & Aftermarket Investment Banking 10 Automotive & Aftermarket Contacts
Automotive M&A Activity
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Global Automotive & Aftermarket M&A Activity
Annual M&A Trends
M&A activity in the automotive and auto aftermarket sectors increased substantially in 2014 to 348 transactions, a 13% increase over 2013. Deal volume was also up significantly, reaching nearly $61 billion for the year, an impressive 335% increase over 2013. This was largely the result of a number of sizable, marquee transactions (e.g., TRW, Elektrobit, etc.). We see this trend continuing in 2015, as a number of large players look to optimize their portfolios, shedding non-core business as they look to reinvest in their core focus areas (e.g., Delphi Thermal, Magna Interiors, etc.). In addition to deal activity, valuations remain near historical highs, with 2015 valuations showing a meaningful jump over prior years, largely the result of a high number of recent aftermarket transactions.
Automotive Transaction Volume & Value
# of Deals # of Deals Total Deal Volume Total Deal Volume ($ in billions) 500 $80 381 400 362 361 341 358 348 298 320 307 $60 300 261 $40 200 89 73 100 $20 0 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2014 Q1 2015 Total Deal $15 $14 $40 $56 $14 $18 $34 $39 $14 $61 $7 $8
Volume Sources: Dealogic.
Average EV/EBITDA Multiples
EV/LTM EBITDA Multiple Median: 6.2x 10.0x 8.9x
8.0x 6.5x 6.7x 6.4x 6.9x 6.8x 6.8x 6.8x 6.0x 6.0x 5.7x 6.0x 3.8x 4.0x 2.0x 0.0x 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2014 Q1 2015 Sources: Capital IQ, press releases, and William Blair & Company market analysis.
EBITDA Multiples by Sub-Segment
EV/LTM EBITDA Multiple 10.0x 8.3x 8.4x 8.1x 8.0x 5.8x 5.6x 6.0x 6.0x
4.0x
2.0x
NMF Fluid & Air Systems Interior / NVH Body & Chassis Safety & Electronics Powertrain Aftermarket Sources: Capital IQ, press releases, and William Blair & Company market analysis. Data from 2005 – 2015 Q1.
Automotive & Aftermarket Investment Banking 11 Global Automotive & Aftermarket M&A Activity
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Participant Trends Percent of Deals 100% Following80% the recent downturn, financial sponsors had limited participation in the automotive sector, primarily focusing on the less- 60% 40% cyclical aftermarket20% business that typically can sustain higher leverage levels and are on the higher end of the automotive valuation spectrum.0% However, as automotive has continued to be a bright spot in the North American economy, financial sponsors have once again begun increasing investment in the sector. However, the bulk of automotive M&A activity involves strategic acquirers, making up 86% of acquirers in the first quarter of 2015. This is also partly influenced by sponsor-backed strategics, as roll-ups are a strategy frequently pursued by financial sponsors that participate in the space.
Breakdown of Acquirers by Type
% Strategic % Sponsor Percent of Deals 100%
80%
60%
40%
20%
0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 Strategic 82% 79% 83% 86% 89% 91% 91% 89% 88% 89% 86% SponsorPercent of Deals18% 21% 17% 14% 11% 9% 9% 11% 12% 11% 14% 100% Sources: Dealogic.80% 60% 40% 20% After declines0% in in 2013 and 2014, cross-border M&A activity has been on the rise, following the proliferation of global platforms as the trend towards globalization continues. We expect the level of cross-border activity to be strong in 2015, following a record pace first quarter, and continue to rise as successful domestic players seek to build platforms abroad. North America, specifically both the U.S. and Mexico, will likely be an area of high interest for potential acquirers globally.
Breakdown of Acquirers by Location
% Domestic % Cross-border
Percent of Deals 100%
80%
60%
40%
20%
0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015 Domestic 68% 69% 67% 65% 69% 61% 66% 62% 70% 68% 60% Cross-Border 32% 31% 33% 35% 31% 39% 34% 38% 30% 32% 40% Sources: Dealogic. Domestic defined as seller and buyer in same country. Cross-border defined as seller and buyer in different countries.
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Notable Recent Automotive & Aftermarket Transactions
Announced: 04/17/15 Observations / Rationale: Closed: 04/17/15 In April 2015, Roark Capital, an Atlanta-based private equity firm, announced that it has acquired Driven Brands from Harvest Partners. Driven Brands is a leading family Target: of automotive franchise companies, with companies that include MAACO, Meineke Car Charlotte, NC Care Centers, Merlin 200,000 mile shops, Pro Oil Change, Econo Lube & Tune, AutoQual, Aero-Colours and Drive ‘N Style. Acquirer: Jonathan Fitzpatrick, Driven Brands’ Chief Executive Officer commented: "Roark Capital brings us deep experience investing in growth consumer and franchise Atlanta, GA businesses, and their understanding of the importance of the franchisor- Key Metrics (Announced): franchisee relationship makes them the right investment partner for all of our Implied Enterprise Value ($MM): ND stakeholders." EV / LTM Revenue: N/A Roark Capital has acquired 42 multi-unit brands that generate annual system EV / LTM EBITDA: N/A revenues of approximately $17 billion through 20,000 locations that operate in 50
states and 72 countries. This transaction highlights another example of strong private equity interest in the automotive aftermarket.
Announced: 04/16/15 Observations / Rationale: Closed: Target 3rd Quarter 2015 In April 2015, Magna International Inc. (TSX: MG, NYSE: MGA) announced that it has signed an agreement to sell substantially all of its interiors operations to Grupo Target: Antolin, a leading global supplier of automotive interior systems. The transaction Interiors Division Aurora, ON, Canada includes 36 manufacturing operations and approximately 12,000 employees located in Europe, North America and Asia, and creates the world’s third largest auto interiors business. Magna’s seating operations were not part of the transaction. Acquirer: Don Walker, Magna's Chief Executive Officer commented: "This transaction is
Burgos, Spain consistent with our strategy of refining our product portfolio to focus on certain key areas of the vehicle." Key Metrics (Announced): Ernesto Antolín, Grupo Antolin’s Executive Chairman noted: “... we have found a Implied Enterprise Value ($MM): $525 very complementary business that fits perfectly well with ours. We are happy to 0.2x EV / LTM Revenue: anticipate further consolidation in the automotive industry in order to increase EV / LTM EBITDA: ND our competitiveness and give the best solutions to our clients thanks to our technological capacity and the generation of economies of scale.” The purchase would allow Grupo Antolin to reinforce its presence in Europe, North America and Asia and to diversify its client base and product portfolio. The transaction is another example of the consolidation that is occurring in the automotive interior category and the portfolio rationalization being performed at corporate offices across the industry.
Announced: 02/19/15 Observations / Rationale: Closed: Target 3rd Quarter 2015 Delphi Automotive PLC (NYSE: DLPH) announced that it has entered into a definitive agreement to sell its wholly-owned thermal business to MAHLE GmbH, a leading global Target: Thermal Division supplier of thermal systems. The transaction includes 13 plants globally and approximately 6,700 employees. Gillingham, U.K. Rodney O’Neal, Delphi’s Chief Executive Officer and President said: “The Acquirer: transaction positions Delphi with a more focused high-growth product portfolio that addresses the trends of safe, green and connected.” Stuttgart, Germany Prof. Heinz K. Junker, MAHLE’s Chairman of the Management Board and Chief Key Metrics (Announced): Executive Officer said, “The transaction extends our production footprint in Implied Enterprise Value ($MM): $727 Europe, North America, and Asia and further strengthens our product range and EV / LTM Revenue: 0.5x systems competence-particularly with air conditioning compressors.” EV / LTM EBITDA: 9.5x
Automotive & Aftermarket Investment Banking 13 Global Automotive & Aftermarket M&A Activity
William Blair & Company
Announced: 07/10/14 Observations / Rationale: Closed: 05/15/15 In July 2014, TRW announced that it has entered into a definitive agreement with ZF Friedrichshafen AG (ZF) under which ZF will acquire all outstanding shares of TRW. Target: TRW is a global automotive supplier; TRW Automotive products include integrated Livonia, MI vehicle control and driver assist systems, braking systems, steering systems, suspension systems, occupant safety systems (seat belts and airbags), electronics, engine components, fastening systems and aftermarket replacement parts and Acquirer: services. Friedrichshafen, Germany The transaction will create a global leader in the automotive supplier business Key Metrics (Announced): with pro forma combined sales of approximately €30 billion ($41 billion) and Implied Enterprise Value ($MM): $13.576 138,000 employees. EV / LTM Revenue: 0.8x The combined company will be well positioned to capitalize on favorable EV / LTM EBITDA: 7.4x megatrends in the automotive industry by bringing together complementary
product offerings and leading technology positions that serve high-growth areas such as fuel efficiency, increased safety requirements, and autonomous driving. Stefan Sommer, Chief Executive Officer of ZF, said: “The acquisition of TRW fits perfectly into our long-term strategy…We are strengthening our future prospects by enlarging our product portfolio with acknowledged technologies in the most attractive segments.”
Announced: 05/29/14 Observations / Rationale: Closed: 10/30/14 In May 2014, Hilite International announced that it was to be acquired by AVIC Electromechanical Systems Co., a subsidiary of Aviation Industry Corporation of China Target: (AVIC), a large state-owned enterprise in China. Hilite manufactures engine, transmission, and emission control products. Carrolton, TX Hilite was of high strategic interest to AVIC, providing advanced powertrain Acquirer: technologies and leverage to fuel efficiency trends. Karl Hammer, CEO of Hilite commented, “AVIC and Hilite are a perfect fit. We Hong Kong complete their existing powertrain portfolio with best-in-class technology and expertise available, and get superior access to Asian markets and to the customer Key Metrics (Announced): base of one of the fastest growing supplier networks worldwide.” $644 Implied Enterprise Value ($MM): Mr. Jian Wang, CEO of AVIC stated, “We believe this acquisition will further EV / LTM Revenue: 1.2x EV / LTM EBITDA: 7.2x strengthen AVIC leading position in the powertrain technology applied to core systems of vehicle/vessel, enable us to become a leader in fuel efficiency and emission reduction...”
Announced: 01/13/14 Observations / Rationale: Closed: 07/01/2014 Visteon Corporation (NYSE:VC), has agreed to purchase the automotive electronics business of Johnson Controls (NYSE:JCI), a global multi-industrial company with Target: established core businesses in the buildings, automotive and energy storage industries.
Electronics Division The business to be acquired supplies driver information, infotainment, connectivity Milwaukee, WI and body electronics products. The transaction involves about 4,800 employees, including about 1,000 engineers, electronics specialists and designers. Acquirer: Timothy D. Leuliette, Visteon, President and CEO said, "This is a strong strategic fit
Van Buren, MI with our existing electronics portfolio and gives us the worldwide scale and cost efficiencies needed to support vehicle manufacturers' global platforms and Key Metrics (Announced): programs. It also diversifies our electronics customer base, solidifies our already Implied Enterprise Value ($MM): $265 strong global footprint, and brings new technologies, capabilities and outstanding 0.2x EV / LTM Revenue: engineers to help grow our business." EV / LTM EBITDA: 4.6x The transaction completes Johnson Controls' divestiture of the automotive electronics business. The company elected to move away from automotive electronics as part of its broader strategy to focus on core businesses and reallocate capital to further diversify its portfolio and maximize shareholder value.
Automotive & Aftermarket Investment Banking Global Automotive & Aftermarket M&A Activity 14
Leveraged Finance Market Update
William Blair & Company
Leveraged Finance Market Update
In March and April 2015, demand from investors for institutional loans far outstripped the supply of new issuances. The result of this supply/demand imbalance has been declining interest rates and more favorable terms for issuers. In March 2015, spreads came down by 25-50 bps and the downward trend continued in April and May. As of mid-May, the average single-B first lien spread stood at 393 bps, down ~90 bps from the recent highs seen in January and February 2015. Demonstrating the favorable terms available to issuers, covenant-lite loans accounted for more than 70% of loan volume in April 2015, the highest percentage of new issue loans since October 2013. Leveraged loan volume for YTD April 2015 was $149.6 billion compared with $224.1 billion for the same period in 2014. The decrease is mainly due to lower repricing activity and increased regulatory pressure from OCC and Federal Reserve to fund transactions that meet shared national credit reviews. Recapitalization and repricing volume was light during 1Q15 as higher rates made these opportunistic transactions less attractive to issuers. However, with the recent drop in rates, we expect the volume of opportunistic transactions to increase in the coming quarters. The average leverage for large corporate LBOs for 1Q15 was 5.6x, down slightly from 5.8x seen during all of 2014, but in line with leverage levels in 4Q14. The modestly lower leverage level in 1Q15 is still at the upper end of the range of levels seen since the recession. Debt multiples for middle market LBOs have followed a similar trend, averaging 4.9x in 1Q15, compared to 5.3x for all of 2014. While leverage levels are down slightly from last year, they remain meaningfully higher than levels seen in 2009-2012.
Institutional “B+/B” Spreads Loan Volume
bps ($ in billions) 600.00 $700 $607 550.00 $600 $528 $466 500.00 $500 $377 $400 450.00 $300 $236 $224 400.00 $150 L+ 393 $200 350.00 $100 300.00 $0
2010 2011 2012 2013 2014 YTD YTD
Jul-13 Jul-14
Jul-12 2014 2015
Jan-12 Jan-13 Jan-14 Jan-15
Oct-11 Oct-12 Oct-13 Oct-14
Apr-13 Apr-14 Apr-15 Apr-12 Source: S&P Leveraged Commentary & Data and William Blair proprietary data.
Covenant-Lite Loan Volume LBO Leverage (Debt / LTM EBITDA)
Volume ($ in billions) Total Leveraged Loans (%) $40 80% 7.0x 5.8x 5.6x $35 70% 6.0x 5.2x 5.3x 5.4x 5.3x 5.5x 4.7x 4.8x 4.9x 4.9x $30 60% 5.0x 4.2x 4.3x 4.5x $25 50% 4.0x $20 40% 3.0x $15 30% 2.0x $10 20% $5 10% 1.0x $0 0% 0.0x 2010 2011 2012 2013 2014 1Q14 1Q15
$ Volume % of Total Leveraged Loans Large Corporate Middle Market Source: S&P LCD.
Automotive & Aftermarket Investment Banking 15 Leveraged Finance Market Update
William Blair & Company
Looking at the automotive market in relation to the broader market, LBO loan multiples for automotive transactions trail the median of the broader market Leverage multiples for automotive LBOs have held steady over the last several years, consistent with strong performance of the sector and in line with EV/EBITDA trends realized on M&A transactions Driven by the lower median leverage multiples and a borrower friendly interest rate environment, automotive transactions have demonstrated robust interest coverage ratios Specific recent automotive leveraged loan comparables can be found on the following page
LBO Multiples(1) Auto LBO Multiples EBITDA / Interest Expense(1)
7.0x 7.0x 5.0x 5.9x 4.2x 6.0x 6.0x 4.0x 5.0x 4.2x 5.0x 4.3x 4.2x 4.2x 3.1x 4.1x 3.8x 3.9x 4.0x 4.0x 3.0x 2.4x 3.0x 3.0x 2.0x 2.0x 2.0x 1.0x 1.0x 1.0x 0.0x 0.0x 0.0x Automotive Large Corporate 2009 2010 2011 2012 2013 2014 LTM Automotive Large Corporate Overall 05 / Overall 2015
(1) For new deals closed between May 1, 2014 and April 30, 2015. Source: S&P Leveraged Commentary & Data and William Blair proprietary data.
Automotive & Aftermarket Investment Banking Leveraged Finance Market Update 16
William Blair & Company
Leveraged Loan Automotive Comparables
($ in millions) Credit Ratings Pricing at Close / Talk Debt / EBITDA Closed LTM Company Facility Size Date Corporate Facility Spread Floor OID Yield EBITDA 1st Lien Total Sage Term Loan B $30 Apr-15 B2 / B B2 / B L+500 1.00% 99.00 6.25% -- -- 4.0x- Automotive (add-on) 5.0x Holdings Use of proceeds: Backs the acquisition of Miko, an Italian manufacturer of synthetic suede Term Loan B $155 Oct-14 B2 / B B2 / B L+500 1.00% 99.00 6.25% Second Lien $35 Oct-14 Caa1 / L+800 1.00% 99.00 9.25%
CCC+ Use of proceeds: LBO (Clearlake Capital) A provider of bodycloth to automotive manufacturers. Proprietary Total Debt $163 Mar-19 Proprietary $45 1.3x 3.7x Use of proceeds: Recapitalization / Growth Tier 1 supplier of stamped steel products to the automotive industry. U.S. Farathane Term Loan B $390 Feb-15 B2 / B B2 / B L+575 1.00% 98.00 7.25% $112 3.7x 3.7x Use of proceeds: LBO (Gores Group) Designs, manufactures, and supplies engineered plastic injection-molded components to the automotive industry. Dealer Tire Term Loan B $615 Dec-14 B2 / B B2 / B L+450 1.00% 99.00 5.75% ~$120 ~5.0x ~5.0x Use of proceeds: LBO (Lindsay Goldberg) Distributor of aftermarket automotive parts. BBB Term Loan B $295 Oct-14 B2 / B B1 / B L+500 1.00% 98.00 6.50% $69 4.1x 5.6x Industries Second Lien $100 Oct-14 Caa1 / L+875 1.00% 94.00 11.25% CCC+ Use of proceeds: LBO (Pamplona Capital Management) A supplier of rotating electrical parts to the automotive industry. Key Safety Term Loan B $525 Jul-14 B1 / B+ Ba2 /B+ L+375 1.00% 99.50 4.88% $122 4.3x 4.3x Systems Use of proceeds: LBO (FountainVest Partners) Designer and manufacturer of safety critical components and systems in the automotive sector. TI Automotive Term Loan B $1,250 Jul-14 -- / -- -- / -- L+325 1.00% 99.50 4.38% $431 2.9x 2.9x Use of proceeds: Dividend Recap Designer & manufacturer of fuel storage and delivery, automotive brake and powertrain systems. Henniges Term Loan B $265 Jul-14 B2 / B B1 / B L+500 1.00% 99.00 6.25% $74 3.6x 3.6x Automotive Use of proceeds: Dividend Recap A global provider of sealing systems for automotive industry. Proprietary Senior Term Loan $186 Jun-14 Proprietary $44 4.3x 4.3x Use of proceeds: Acquisition Manufactures highly engineered extruded products and solutions for a variety of industrial markets. HHI Term Loan B $115 May-14 B2 / B+ B2 / B+ L+375 1.25% 99.63 5.09% $174 3.9x 3.9x Automotive (add-on) Use of proceeds: Dividend Recap Manufacturer and supplier of automotive components. Min $44 1.3x 2.9x Median $112 3.9x 4.1x Max $431 5.0x 5.6x Source: S&P Leveraged Commentary & Data and William Blair proprietary data.
Automotive & Aftermarket Investment Banking 17 Leveraged Finance Market Update
Public Comparables
William Blair & Company
Public Comparable Performance & Trends
Public Comparables by Segment
Performance Metrics – Interior NVH
Company Name Category Characteristics Performance Metrics Faurecia S.A. Companies focused on 25.0% the occupant Grammer AG 20.0% 19.9% environment Lear Corp. Components and 15.0% 11.3% STRATTEC Security Corporation companies related to 11.1% 11.5% 10.0% 9.4% Valeo SA styling, aesthetics, 7.7% 8.0% 10.4% 6.3% comfort, and overall 5.0% 5.9% 5.7% “feel” of the vehicle 3.0% 0.0% Includes systems, Gross Margin EBITDA Margin EBIT Margin 2013-2016 components, and Revenue CAGR materials High Mean Median Low
Performance Metrics – Fluid & Air Systems
Company Name Category Characteristics Performance Metrics Tenneco Inc. Management and flow 35.0% 32.1% Cooper-Standard Holdings Inc. of fluids and vapors 30.0% through the vehicle 25.0% Sogefi SpA Purity of fluid and 20.0% MGI Coutier SA vapor to occupants 15.0% 16.4% 13.7% 10.6% 9.6% 10.0% 9.4% 7.7% 7.4% 5.0% 6.5% 5.5% 5.7% 0.0% 3.8% Gross Margin EBITDA Margin EBIT Margin 2013-2016 Revenue CAGR High Mean Median Low
Performance Metrics – Body & Chassis
Company Name Category Characteristics Performance Metrics Iochpe-Maxion S.A. Appearance parts and 40.0% Superior Industries International, Inc. lighting 33.4% 30.0% Dana Holding Corporation Structural materials and systems 19.0% Martinrea International Inc. 20.0% Full chassis system 16.2% Progress-Werk Oberkirch Aktiengesellschaft 14.0% including: steering, 10.0% 10.6% 8.7% suspension, brakes, and 8.2% 7.2% 6.8% 5.9% Metaldyne Performance Group Inc. 4.0% wheels 0.1% 0.0% Tower International, Inc. Gross Margin EBITDA Margin EBIT Margin 2013-2016 Magna International Inc. Revenue CAGR High Mean Median Low Cie Automotive, S.A. American Axle & Manufacturing Holdings Inc.
Automotive & Aftermarket Investment Banking 18 Public Comparable Performance & Trends
William Blair & Company
Performance Metrics – Powertrain
Company Name Category Characteristics Performance Metrics Linamar Corp. Systems related to the 40.0% Montupet SA generation and 34.7% transmission of power 30.0% BorgWarner Inc. to the wheel ends 26.4% 19.0% 20.4% ElringKlinger AG Abatement and 20.0% 16.1% 16.7% mitigation of 13.2% GKN plc 13.1% 10.8% greenhouse emissions 10.0% 8.8% 8.3% Fuel efficiency 4.1% 0.0% technologies and Gross Margin EBITDA Margin EBIT Margin 2013-2016 products Revenue CAGR High Mean Median Low
Performance Metrics – Safety & Electronics
Company Name Category Characteristics Performance Metrics
Delphi Automotive PLC 40.0% 39.4% “Smart Systems” 36.9% Gentex Corp. Sensor technologies 30.0% 29.8% 31.0% Methode Electronics, Inc. and other advanced electrical products 22.6% Stoneridge Inc. 20.0% Power Management 15.0% Visteon Corporation 12.2% technologies and 10.0% 10.6% energy storage (i.e., 8.5% 8.7% Gentherm Incorporated 5.5% batteries) 1.5% 0.0% Autoliv, Inc. Accident/crash Gross Margin EBITDA Margin EBIT Margin 2013-2016 Brembo SpA mitigation Revenue CAGR systems/components High Mean Median Low CTS Corporation Accident avoidance (passive safety)
Performance Metrics – Aftermarket(1)
Company Name Category Characteristics Performance Metrics Federal-Mogul Holdings Corporation Asset Light Business 40.0% 39.2% Dorman Products, Inc. Models 30.0% 29.2% Standard Motor Products Inc. Vertically Integrated Manufacturers 20.1% Motorcar Parts of America, Inc. 20.0% 19.9% Consumer Products 18.2% 14.8% LKQ Corp. 12.0% Oriented Models 10.2% 8.7% 10.0% 8.6% Remy International, Inc. Distribution 4.0% 1.8% Non-Discretionary 0.0% Replacement Products Gross Margin EBITDA Margin EBIT Margin 2013-2016 Revenue CAGR High Mean Median Low (1) Note that aftermarket products companies are shown, comp sets to vary based on specific business model characteristics and consumer orientation.
Automotive & Aftermarket Investment Banking Public Comparable Performance & Trends 19
William Blair & Company
Automotive Public Equity Performance
Indexed Performance – LTM
Recent accelerating trends 140.0 in safety and electronics are driving industry- 130.0 120.4 leading130.0 equity performance 120.0 120.1 114.1 110.0 119.4 107.1 110.0 100.0 95.9 90.0 102.9 91.0 92.0 88.7 90.0 80.0 90.1 70.0 87.2 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 70.0 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 Interior / NVH Fluid & Air Systems Body & Chassis Powertrain Safety & Electronics Aftermarket
Indexed Performance – Last 3 Years
Interior players have 370.0 experienced significant 329.7 share price gains over the 320.0 last 3 years as they have 270.9 270.0 recovered from depressed 242.2 valuations 220.0 209.0 203.1 170.0 172.5 120.0
70.0 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
Indexed Performance – Last 10 Years
Aftermarket is the most 500.0 consistent of the segments 450.0 for public investors, with 400.0 365.6 superior returns over the 350.0 350.3 last 10 years 300.0 301.9 250.0 284.6 283.7 200.0 174.4 150.0 100.0 50.0 0.0 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15
Source: FactSet as of June 5, 2015.
Automotive & Aftermarket Investment Banking 20 Public Comparable Performance & Trends
William Blair & Company
Historical Public Automotive TEV/ LTM EBITDA by Sub-Segment (Trailing)
Nearly every category is at or exceeds, the long term historical median multiple.
Historical Public Automotive TEV / LTM EBITDA by Sub-Segment
Interior / NVH Fluid & Air Systems Median: 4.8x Median: 5.0x 15.0x 15.0x
12.0x 12.0x 8.5x 9.0x 9.0x 6.6x 6.7x 6.2x 5.8x 5.1x 6.0x 5.9x 5.1x 4.8x 4.6x 5.0x 5.1x 4.2x 4.9x 4.4x 5.7x 6.0x 4.7x 3.9x 4.6x 3.3x 4.8x 6.0x 4.6x 4.9x 3.0x 3.0x
0.0x 0.0x
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current Current Body & Chassis Powertrain Median: 5.8x Median: 6.4x 15.0x 15.0x 10.7x 12.0x 10.7x 12.0x 9.6x 9.0x 9.0x 9.0x 9.0x 6.7x 9.0x 7.4x 7.7x 6.8x 5.3x 4.8x 6.2x 5.7x 6.0x 6.2x 6.4x 6.1x 5.1x 5.2x 5.0x 5.5x 4.9x 6.5x 6.0x 6.0x 3.0x 3.0x
0.0x 0.0x
2011 2012 2004 2005 2006 2007 2008 2009 2010 2013 2014
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current Current Safety & Electronics Aftermarket Median: 7.6x Median: 9.0x 15.0x 15.0x 10.5x 12.0x 10.1x 12.0x 10.0x10.8x 9.3x 9.0x 9.8x 9.2x 7.7x 7.7x 9.0x 9.4x 9.0x 6.8x 7.6x 7.5x 7.5x 8.2x 9.0x 6.2x 6.6x 7.2x 6.8x 6.3x 6.2x 6.0x 5.3x 6.0x 3.0x 3.0x
0.0x 0.0x
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current Current Source: Dealogic, Capital IQ, William Blair & Company market analysis as of June 5, 2015.
Automotive & Aftermarket Investment Banking Public Comparable Performance & Trends 21
William Blair & Company
Historical Public Automotive TEV / NTM EBITDA by Sub–Segment (Forward)
Nearly every category is at or exceeds, the long term historical median multiple.
Historical Public Automotive TEV / NTM EBITDA by Sub-Segment
Interior / NVH Fluid & Air Systems Median: 4.6x Median: 4.9x 15.0x 15.0x
12.0x 12.0x
9.0x 9.0x 6.3x 5.7x 5.5x 5.7x 5.1x 4.6x 4.3x 4.9x 5.3x 4.8x 5.4x 4.3x 5.0x 6.0x 4.6x 3.8x 4.5x 3.9x 2.9x 4.1x 6.0x 4.5x 4.1x 4.0x 4.9x 4.9x 3.0x 3.0x
0.0x 0.0x
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current Current Body & Chassis Powertrain Median: 5.3x Median: 5.8x 15.0x 15.0x
12.0x 12.0x 7.6x 9.0x 7.2x 9.0x 6.7x 7.4x 7.3x 5.6x 5.8x 5.5x 5.7x 5.2x 5.5x 5.8x 5.0x 4.4x 4.3x 5.2x 5.1x 5.3x 4.6x 5.7x 6.3x 5.9x 6.0x 4.5x 5.6x 6.0x 3.0x 3.0x
0.0x 0.0x
2011 2012 2004 2005 2006 2007 2008 2009 2010 2013 2014
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current Current Safety & Electronics Aftermarket Median: 6.5x Median: 7.5x 15.0x 15.0x
12.0x 12.0x 10.5x 9.2x 9.5x 8.6x 8.0x 8.8x 9.0x 7.8x 7.9x 6.3x 6.8x 9.0x 7.2x 7.9x 7.7x 6.1x 6.3x 5.4x 6.2x 5.2x 6.8x 5.8x 6.0x 6.0x 5.7x 5.6x 5.4x 5.5x 3.0x 3.0x
0.0x 0.0x
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current Current Source: Dealogic, Capital IQ, William Blair & Company market analysis as of June 5, 2015.
Automotive & Aftermarket Investment Banking 22 Public Comparable Performance & Trends
William Blair & Company
Public Comparables Company Trading Statistics
Select Comparable Public Company Metrics
($ in millions) Stock Price LTM Financials LTM Margins 3-Year Valuation Change Historical Since Gross OCF Revenue Enterprise EV / LTM EV / LTM Net Debt / Company 12/31/14 Revenue EBITDA Profit EBITDA Margin(1) ROIC CAGR Value Revenue EBITDA EBITDA
Interior NVH
Faurecia S.A. 39.6% $23,917 $1,420 7.7% 5.9% 3.1% 5.3% 8.1% $7,942 0.40x 6.7x 1.3x
Grammer AG 7.4% 1,751 115 11.1% 6.6% 4.2% 9.6% 5.7% 581 0.39x 5.9x 1.5x
Lear Corp. 19.6% 17,727 1,419 8.9% 8.0% 5.6% 19.1% 10.4% 10,004 0.56x 7.1x 0.4x
STRATTEC Security Corporation (16.8%) 412 47.177 19.9% 11.5% 5.4% 19.0% 11.3% 248 0.60x 5.2x N/A
Valeo SA 50.6% 15,471 1,709 17.2% 11.0% 5.7% 18.1% 10.4% 14,514 1.14x 10.3x 0.4x
Mean 20.1% $11,855 $942 13.0% 8.6% 4.8% 14.2% 9.2% $6,658 0.62x 7.0x 0.9x
Median 19.6% 15,471 1,419 11.1% 8.0% 5.4% 18.1% 10.4% 7,942 0.56x 6.7x 0.9x
Fluid & Air Systems
Cooper-Standard Holdings Inc. 9.3% $3,206 $304 15.8% 9.5% 3.9% 3.8% 3.8% $1,703 0.53x 5.6x 2.0x
MGI Coutier SA 34.3% 918 97 32.1% 10.6% 4.5% 11.6% 9.6% 533 0.70x 6.6x 0.9x
Sogefi SpA 41.9% 1,683 124 13.7% 7.4% 3.9% 3.5% 4.3% 746 0.52x 7.0x 3.2x
Tenneco Inc. 5.2% 8,447 792 16.9% 9.4% 5.6% 13.4% 6.6% 4,811 0.57x 6.1x 1.3x
Mean 22.7% $3,564 $329 19.6% 9.2% 4.5% 8.1% 6.1% $1,948 0.58x 6.3x 1.8x
Median 21.8% 2,445 214 16.4% 9.4% 4.2% 7.7% 5.5% 1,224 0.55x 6.3x 1.7x
Body & Chassis
American Axle & Manufacturing 13.6% $3,588 $506 15.2% 14.1% 8.5% 10.9% 13.9% $3,301 0.92x 6.5x 2.6x Holdings Inc.
Cie Automotive, S.A. 29.9% 2,953 402 32.2% 13.6% 13.6% 10.8% 19.0% 3,191 1.26x 9.2x 0.0x
Dana Holding Corporation 1.3% 6,617 714 14.3% 10.8% 7.3% 22.2% (2.5%) 4,179 0.63x 5.9x 0.5x
Iochpe-Maxion S.A. (2.5%) 2,495 262 13.2% 10.5% 5.8% 1.4% 5.9% 1,069 0.55x 5.3x 3.2x
Magna International Inc. 6.5% 36,010 3,477 13.8% 9.7% 5.1% 23.0% (0.2%) 23,704 0.66x 6.8x N/A
Martinrea International Inc. 34.9% 3,087 222 9.6% 7.2% 1.3% 7.0% 10.4% 1,485 0.53x 7.4x 2.6x
Metaldyne Performance Group Inc. 11.5% 2,942 475 16.1% 16.2% 9.8% 3.5% 16.7% 3,121 1.06x 6.6x 3.8x
Progress-Werk Oberkirch 26.1% 479 55 33.4% 11.4% 2.2% 3.2% 3.3% 285 0.70x 6.1x 2.9x Aktiengesellschaft
Superior Industries International, Inc. (2.4%) 751 64 8.2% 8.5% (5.1%) 2.2% (1.6%) 430 0.57x 6.7x N/A
Tower International, Inc. 9.7% 2,164 210 11.4% 9.7% 5.1% 3.8% N/A 1,060 0.49x 5.1x 1.9x
Mean 12.9% $6,109 $639 16.8% 11.2% 5.4% 8.8% 7.2% $4,183 0.74x 6.5x 2.2x
Median 10.6% 2,947 332 14.0% 10.6% 5.4% 5.4% 5.9% 2,303 0.64x 6.5x 2.6x
Powertrain
BorgWarner Inc. 10.6% $8,305 $1,430 21.1% 17.2% 10.3% 16.0% 8.6% $14,480 1.74x 10.1x 0.4x
ElringKlinger AG (9.5%) 1,732 272 26.4% 15.7% 4.4% 8.5% 10.2% 2,243 1.51x 9.6x 1.8x
GKN plc 7.4% 11,749 1,543 34.3% 13.1% 8.5% 6.7% 4.1% 10,602 0.97x 7.4x 0.9x
Linamar Corp. 20.5% 3,598 601 16.1% 16.7% 9.5% 18.4% 20.4% 4,760 1.45x 8.7x 0.5x
Montupet SA 11.5% 619 118 34.7% 19.0% 6.9% 14.5% 8.8% 966 1.88x 9.9x 0.9x
Mean 8.1% $5,201 $793 26.5% 16.4% 7.9% 12.8% 10.4% $6,610 1.51x 9.1x 0.9x
Median 10.6% 3,598 601 26.4% 16.7% 8.5% 14.5% 8.8% 4,760 1.51x 9.6x 0.9x (1) Operating Cash Flow (OCF) calculated as EBITDA less capital expenditure. Source: Capital IQ as of June 5, 2015 and William Blair & Company market analysis.
Automotive & Aftermarket Investment Banking Public Comparable Performance & Trends 23
William Blair & Company
Select Comparable Public Company Metrics (cont’d)
($in millions) Stock Price LTM Financials LTM Margins 3-Year Valuation Change Historical Since Gross OCF Revenue Enterprise EV / LTM EV / LTM Net Debt / Company 12/31/14 Revenue EBITDA Profit EBITDA Margin(1) ROIC CAGR Value Revenue EBITDA EBITDA
Safety & Electronics
Autoliv, Inc. 21.6% $9,239 $1,154 19.4% 12.5% 7.1% 10.4% 5.7% $11,704 1.27x 10.1x N/A
Brembo SpA 41.3% 2,210 331 34.5% 15.0% 8.4% 16.6% 11.7% 3,129 1.64x 11.0x 1.3x
CTS Corporation 5.8% 402 66 33.1% 16.5% 13.7% 11.6% 1.5% 571 1.42x 8.6x N/A
Delphi Automotive PLC 19.9% 17,023 2,674 18.7% 15.7% 11.0% 27.2% 3.2% 27,552 1.62x 10.3x 0.6x
Gentex Corp. (3.5%) 1,352 499 39.4% 36.9% 31.6% 22.4% 12.5% 2,380 1.76x 4.8x N/A
Gentherm Incorporated 44.0% 824 135 30.5% 16.4% 11.3% 23.1% 22.6% 1,913 2.32x 14.1x 0.2x
Methode Electronics, Inc. 28.9% 862 130 22.3% 15.0% 12.9% 39.8% 12.7% 1,714 1.99x 13.2x N/A
Stoneridge Inc. (9.6%) 663 68 29.8% 10.2% 5.9% (15.5%) 4.4% 502 0.76x 7.4x 2.1x
Visteon Corporation 2.9% 7,820 664 10.6% 8.5% 4.1% (14.1%) N/A 5,896 0.75x 8.9x 0.1x
Mean 16.8% $4,488 $636 26.5% 16.3% 11.8% 13.5% 9.3% $6,151 1.50x 9.8x 0.8x
Median 19.9% 1,352 331 29.8% 15.0% 11.0% 16.6% 8.7% 2,380 1.62x 10.1x 0.6x
Aftermarket
Dorman Products, Inc. (1.5%) $756 $150 38.1% 19.9% 16.1% 21.0% 10.6% $1,629 2.15x 10.8x N/A
Federal-Mogul Holdings Corporation (21.1%) 7,215 617 14.8% 8.6% 2.6% (5.8%) 6.9% 4,239 0.59x 6.9x 3.6x
LKQ Corp. 2.6% 6,888 808 39.2% 11.7% 9.8% 8.8% 16.1% 10,343 1.50x 12.8x 1.9x
Motorcar Parts of America, Inc. (3.8%) 294 38 29.1% 12.8% 11.7% 6.0% 20.1% 542 1.84x 14.4x 0.1x
Remy International, Inc. 9.5% 1,180 139 16.8% 11.7% 9.9% 2.1% 1.9% 982 0.83x 7.1x 1.8x
Standard Motor Products Inc. (7.1%) 975 120 29.3% 12.3% 10.8% 9.1% 1.8% 878 0.90x 7.3x 0.5x
Mean (3.6%) $2,885 $312 27.9% 12.8% 10.1% 6.9% 9.6% $3,102 1.30x 9.9x 1.6x
Median (2.7%) 1,077 144 29.2% 12.0% 10.4% 7.4% 8.7% 1,305 1.20x 9.1x 1.8x (1) Operating Cash Flow (OCF) calculated as EBITDA less capital expenditure. Source: Capital IQ as of June 5, 2015 and William Blair & Company market analysis.
Automotive & Aftermarket Investment Banking 24 Public Comparable Performance & Trends
William Blair & Company
Notes
Automotive & Aftermarket Investment Banking Notes 25
William Blair & Company
Disclosures
William Blair is a trade name for William Blair & Company, L.L.C. and William Blair International, Limited. William Blair & Company, L.L.C., is a Delaware company and is regulated by the Securities and Exchange Commission, The Financial Industry Regulatory Authority, and other principal exchanges. William Blair International Limited is authorised and regulated by the Financial Conduct Authority ("FCA") in the United Kingdom. William Blair & Company® only offers products and services where it is permitted to do so. Some of these products and services are only offered to persons or institutions situated within the United States and are not offered to persons or institutions outside of the United States. This material has been approved for distribution in the United Kingdom by William Blair International Limited, Regulated by the Financial Conduct Authority (FCA), and is directed only at, and is only made available to, persons falling within COB 3.5 and 3.6 of the FCA Handbook (being “Eligible Counterparties” and Professional Clients). This Document is not to be distributed or passed on to any “Retail Clients.” No persons other than persons to whom this document is directed should rely on it or its contents or use it as the basis to make an investment decision. William Blair & Company | 222 West Adams Street | Chicago, Illinois 60606 | +1 312 236 1600 | williamblair.com June 14, 2015 Automotive & Aftermarket Investment Banking 26 Disclosures
June 2015 Sector Update
Automotive & Auto Aftermarket Investment Banking
Todd Cassidy [email protected] +1 312 364 5164
Philipp Mohr [email protected] +49 69 509527 610 Trends affecting M&A in the Automotive andThe Aftermarket Deal sectors Engine
William Blair’s investment banking group combines signi�icant transaction experience, rich industry knowledge, and deep relationships to deliver successful advisory and �inancing solutions to our global base of corporate clients. We serve both publicly traded and privately held companies, executing mergers and acquisitions, growth �inancing, �inancial restructuring, and general advisory projects. This comprehensive suite of services allows us to be a long-term partner to our clients as they grow and evolve. About William Blair From 2010-2014, the investment banking group completed more than 330 merger-and- Investment Banking acquisition transactions worth $73 billion in value, involving parties in 36 countries and �ive continents, was an underwriter on more than 20% of all U.S. initial public offerings, and raised nearly $100 billion in public and private �inancing.