Delphi’s purchase of Dynamit Nobel’s Automotive Ignition Systems business (AIS (GmbH) is a small transaction in the global scale of Delphi.
At a price of $US19.5 million it will not really register on Delphi’s cash position, and its sales of $45 million add less than 0.2% to Delphi’s global total.
But it is nevertheless significant for the trends that it illustrates.
Dynamit Nobel AIS designs and makes initiators, propellANTs, micro-gas generators and other related products for automotive applications.
The acquisition falls into the pattern of many recent acquisitions – strengthening the acquiring group’s technology offering in an important growth area. The small size of the acquisition means that it is not a difficult one for the group to digest, but it enables the groups to offer more in-house expertise and integrate more functions in future customer developments.
“In-house capabilities in related components are an important ingredient in our ability to create future safety innovations”, Jeff Owens, vice president of Delphi and president of Delphi Electronics and Safety was quoted as saying.
Delphi executives said that the acquisition would significantly enhance the group’s inflator technology portfolio, and that the company’s components would be built into future Delphi systems.
Electronics and Safety systems are part of Delphi’s most profitable business segment.
OEM requirements are becoming more demanding and system-related. Even though OEMs are pulling back from entrusting key technological developments solely to suppliers, they are looking for more broadly competent partners for developments in these complex areas – and even if Delphi is not asked to provide the components in Dynamit Nobel AIS ‘s core areas, the company’s ability to interact with other suppliers and help the car maker make technology and capability choices for any programme are enhanced.
The acquisition is also symptomatic of the caution that major automotive suppliers are showing in their acquisitions, and their reluctance to take over the assets of failing or commodity activities.
Cerberus lined up for Peguform
The two years that it has taken to turnaround and sell German plastic component manufacturer Peguform illustrate the other side of the picture.
Despite a seemingly strong position as a module supplier to the industry including such complex modules as the fifth door for the Mercedes-Benz A-Class, and the support of leading German car makers, the administrators who took over the company after the bankruptcy of the German headquartered unit was declared have faced a tough time in disposing of the business. Flex-N-Gate passed over the business when looking for a European bumper arm.
Advisors close to the deal say that this was in part because of the complexities of the administration process that Peguform had sunk into.
Despite their support, customers have become wary of relying on the company. Customers, such as DaimlerChrysler, shifted technologies away from Peguform – for example the rear door of the new A-Class will be supplied in metal instead of plastic.
In July the company closed its Luton operation in the UK with the loss of 180 jobs, and in August it announced 500 job losses at its headquarters in Boetzingen in Germany and 200 at other German sites.
If the expected deal with Cerberus fails there seem few options for the group as a whole and its break-up and the closure of large parts seem inevitable.
The major buyers of the larger automotive component groups for sale have been private equity groups. They are looking for an exit in three or four years to the financial markets, or industrial groups.
But it is not clear that there will be a ready market for these assets when they become available.
To the extent that the name of the game has shifted from mass to class – from market share to the right technology – these assets could find it difficult to find a long term home.