Vehicle parts firms on acquisition road

Southfield, Michigan - Makers of car seats and dashboards, including Magna International Inc and Lear Corp, are among those most likely to make acquisitions this year, as automakers seek suppliers with the scale to handle global projects.

With more than $5 billion in cash, suppliers are adding assets that help automakers develop interior features tailored to fast-growing markets such as Brazil and China. Magna, Lear and Johnson Controls Inc will be among the more aggressive acquirers, said PRTM, a global consulting firm based in Waltham, Massachusetts.

Vehicle interiors are key differentiators among competing vehicles, like kitchens and bathrooms are for house shoppers. Suppliers that specialize in seats, dashboards and related components are looking at distressed companies in Europe to help boost their ability to serve automakers such as General Motors Co and Volkswagen AG in local markets around the world.

"The average customer all over the world is buying by exterior looks and interior experience," Dietmar Ostermann, director of PRTM's automotive practice, said in an interview. "Significantly more vehicle manufacturers are changing the look of cars to appeal to local markets."

Auto-parts companies may make as many as 250 acquisitions worldwide this year, compared with 268 last year, which was the second-highest total, PRTM forecast. That number may be reduced by 12 percent if Standard & Poor's downgrade of US debt increases interest rates and caution among investors, he said.

Deal value may increase this year, to about $60 billion from about $45 billion last year, PRTM forecasts in its study, which examined data and executive comments to assess the potential roles of 565 automotive suppliers as buyers, sellers or financially distressed companies.

Of the 165 companies studied that make parts for vehicle interiors, 32 are "strong" buyers and 26 are "strong" sellers or distressed, PRTM said. Magna, North America's largest auto supplier, and Lear, both makers of seats, are among the most-improved potential buyers, the study said.

Lear may consider seat-frame makers Kongsberg Automotive Holdings ASA, Austem Co or Mitsuba Corp, which makes electric motors for seats, PRTM said. Lear is considering $100 million to $200 million acquisitions of companies that make seat mechanisms and fabrics, said Matt Simoncini, who takes over as chief executive officer Sept 1, in an interview on Wednesday.

Magna is eyeing a range of acquisitions, from smaller technology companies to joint ventures to larger buys, CEO Don Walker, said last week in an interview. He declined to comment on specific acquisition targets.

Based in Aurora, Ontario, Magna had $1.74 billion in cash and $1.9 billion of an unused credit line as of June 30.

The company, which makes everything from rear-view mirrors to entire cars, probably won't diversify further, he said.

Bloomberg News

(China Daily 08/12/2011 page14)