Lear Corp, the world’s sixth largest supplier, has made its first acquisition of the decade. Some analysts say the deal could mean that American suppliers are back on the prowl for strategic buy-outs in Europe.
The US interiors specialist will spend €180 million to take control of Grote and Hartmann GmbH, a German electrical parts maker.
The deal brings critical wiring expertise to Southfield, Michigan-based Lear and some key European customers.
But the acquisition also reflects the fact that Lear has paid down enough debt and can become aggressive again. And other US parts makers are in a similar position.
Several have been relatively quiet on the acquisition front in recent years after the buy-and-sell frenzy of the late 1990s. They have steadily lowered their liabilities and may be ready to seek out mid-sized European companies once again.
Euro-denominated companies are substantially more expensive for American firms these days, but a buyer’s market has been emerging as the number of transactions has slowed in the last three years.
Lear was one of the most active in the late 1990s, buying an average of four companies a year from 1997 through 1999.
The biggest transaction was the $US2 billion purchase of United Technologies Automotive Inc’s electrical and electronics business in 1999.
During the decade, Lear made 17 acquisitions as part of an effort to become a systems supplier and extend its international reach.
But it racked up a lot of debt in the process. Lear had about $2 billion in debt at the end of last year. But the debt to capital ratio is down to about 45% from 70% in the late 1990s.
Outlook unchanged, shares rise on news
The deal is not expected to change Lear’s financial forecast for 2004. Lear’s sales totalled $15.75 billion in 2003.
Standard & Poor’s analysts showed no concern about the expenditure and Lear’s share price went up on the news.
Worldwide supplier mergers and acquisitions fell last year, according to a recent survey by PricewaterhouseCoopers. But deal value actually increased when TRW-related transactions in 2002 aren’t counted. Indeed, activity among medium sized suppliers rose.
Analysts say a substantial number of assets are for sale. Key drivers are supplier efforts to internationalise to follow customers and to bolster core competences.
Wuppertal, Germany-based Grote & Hartmann reported sales of €250 million in 2003. It has 1,900 employees worldwide at plants in Germany, France, the Czech Republic, Mexico and South Africa.