Turnaround specialist Arques AG plans to follow its acquisition of the Leoni wiring group’s Leoni Flex unit with other supplier takeovers.
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The German private equity fund, which is quoted on the Frankfurt stock exchange, invests in traditional manufacturing companies with fix-up potential.
Arques is thought to be the market leader in the German-speaking world in its sector. It has bought and managed more than 40 medium-sized businesses over the last dozen years.
Arques focuses on manufacturing companies with revenue of between €10-€400 million.
The strategy is simple. Arques aims to devise a plan for turning around the business within six weeks of acquisition. Then it sends in a three or four man task force to manage the implementation over six to nine months.
Usually, Arques tries to sell to another supplier after four or five years.
It does not invest in “really desperate cases,” says Arques’ automotive specialist Dr. Dirk Markus, a former McKinsey consultant.
“Sometimes you have markets that are not there any more,” he says.
Leoni Flex was a typical target for the group. Based in France, the operation makes flexible printed circuit boards, mostly for the motor industry.
Sales are €11 million, with around 140 employees.
Leoni acquired the company in 1999 in response to the industry’s move to flexible printed circuit boards to replace conventional wiring systems in areas such as cockpit, roof-liner and doors.
But the “business has not progressed as quickly as expected,” says a Leoni spokesperson, and the group decided to dispose of the subsidiary.
The sale went through on December 23.
Overlooked in the group
The business has not performed to expectations, partly because the market for flexible circuit boards developed more slowly than expected. But there was also not enough management attention, says Markus.
One problem: Leoni Flex was a small and unexciting business within a larger group. But Markus is optimistic about the chances of turning the company around.
“The market is growing for this type of product,” he says. “If you get your cost structure right, if you get your processes in order and the defect rate down and if you manage it right, then definitely you can make money.”
Arques’ previous automotive investments include spring manufacturer Berg, which has since been sold. It acquired automotive conveyor manufacturer Schierholz-Translift about three years ago.
Schierholz-Translift is in the process of being turned around and now growing again, says Markus.
He says there are more opportunities up in the second tier “especially in the sector that Leoni Flex is active in.”
“The poor economic climate of the last two or three years has pushed poorly performing companies closer to the edge,” he says. “There are quite a number of players that are losing money, so there is a strong pressure to consolidate.”
Larger suppliers are focusing on their core competences, Markus says. He also sees more medium sized family-owned companies facing succession issues.
Markus says: “There are more and more businesses that are looking for a successor.”
SupplierBusiness.com
