TI Automotive may take advantage of the improved climate for initial public offerings by going to the stock market this year, says SupplierBusiness.com. The Warren, Michigan-based leader in global fuel systems has already moved to restructure its capital base by issuing new debt.

Smiths Group plc bought TI Group in 2000 for its aerospace business and floated off the automotive operations as TI Automotive in 2001. But low market valuation for suppliers at the time meant Smiths couldn't fully exit the business and was left with a 20% stake.

Former TI Group shareholders own 55% and TI Automotive management owns 25%.

We're going out and raising some more senior debt which gives us a longer profile going forward," TI Automotive CEO Bill Laule told SupplierBusiness.com. "And we're looking at how we can ultimately purchase the equity of Smiths and replace them with probably a more active investor base, including looking at re-listing the company."

"The IPO climate is actually fairly favourable," he said. "We could quite possibly see an announceable event, certainly this calendar year."

Like other highly leveraged suppliers, TI Automotive has faced a tough challenge to reduce debt. Some of its loans are coming up for renewal. TI has £408m (about $726m) in senior term loan expiring in June 2006 and £102.2m (about $182m) expiring June 2008. The company is proposing to issue a new term loan expiring in 2011.

The company has obtained ratings from Moody's and Standard & Poor's in the run-up to issuing new debt. Moody's rated TI Automotive B1 and S&P rated TI Automotive BB- with a stable outlook.

TI Automotive reported sales of £1.57bn ($2.79bn) in 2003, compared to sales of £1.54bn ($2.48bn) in 2002.

Growth, focus and technology story set stage for IPO

TI has maintained sales growth in a difficult market, according to a Moody's report. It has positioned itself as a well-integrated major fuel systems supplier. The company's global market share is 17%.

Some competitors specialize in either the plastic tanks or fuel pumps. But in the late 1990s TI "saw the future of the company had to be built on something that would allow us to continue to add value and create value added as we go forward," said Laule.

It has added content, technological capability and market breadth with the acquisition of Walbro in June 1999. That was followed by the acquisition of Pierburg's pumps business from Rheinmetall in 2003. The acquisitions have been integrated well, says Moody's.

By having all the content under one roof TI executives say they can optimise the contribution of the different elements without triggering turf fights over the value added for each major component.

"This to us is core," said Laule. "TI Automotive's strategy is fuel storage and delivery. "Visteon and Delphi tend to have products in these market places, but that's not where they're focusing their activity, and they're not considered to be core."
The acquisition of Pierburg has helped TI win new business with BMW. It will supply the PZEV tanks to meet California emissions targets for the new 3 Series and the fuel tanks for the next generation X5.

TI recently announced it had won contracts worth more than $100m in Europe, including brake lines for the new small-car platform being developed jointly by PSA Peugeot-Citroën and Toyota at their new joint-venture plant in the Czech Republic. It has also won business with Hyundai in the US and Toyota in China as well as fuel systems on the new Mercedes-Benz C-Class, Chrysler Grand Cherokee and the GMC Envoy.

New pump technology

In April, TI launched a new pump technology that puts the company a year to 18 months ahead of its competitors, says Brian Lindsay, managing director, Commercial & Purchasing for the Global Fuel Systems Group.

TI's dual channel single stage range of fuel pumps results from an investment of more than $10m over the last two years at TI's development centre in North America. The technology, which TI is patenting, offers large potential fuel savings over existing pumps, says TI.

TI produces around 9 million fuel pumps a year, of which 7.5 million are gasoline.
"Within the next six years we expect this new design to replace a majority of the fuel pumps that we produce on a global basis," says Manouchehr Kambakhsh, TI vice-president for global advance engineering.

TI will manufacture the pump in Neuss, Germany, and Caro, Michigan in the US initially, with a capacity of around one million units a year by the end of 2005.
TI's brake hose business is also well established. A few years ago brake hoses looked set to be phased out with the introduction of electro-mechanical brakes. But troubles with electro-hydraulic brakes have taken electro-mechanical braking development off the agenda.

TI has excellent market share in brakes hoses and for now it looks as if the business has a long-term future.