M&A Update | Automotive Supplier H2-2017

H2-2017

AUTOMOTIVE SUPPLIER

M&A UPDATE

PUBLICATION CONTENT PROVIDED BY BAKER TILLY CAPITAL

Automotive supplier industry overview and indicators Baker Tilly Capital, LLC’s automotive supplier M&A newsletter provides an overview of the North American automotive supplier sector, including recent performance and North American M&A trends. Following seven years of growth, new light vehicle sales in the U.S. fell 1.8 percent to 17.2 million units in 2017. There is optimism that this decline will be stabilized in 2018 because of the sales momentum built toward the end of 2017 and the potential favorable impact the income tax cuts are expected to have on the economy. Pressure from the off-lease vehicles and the used vehicle market will remain, but is not expected to have a material effect on volume. The wildcard for the year is the future of the North American Free Trade Agreement (NAFTA) and potential impact from steel and aluminum tariffs. JD Power and LMC Automotive forecast 2018 total light-vehicle sales to be 17.0 million units, a decrease of 1.3 percent from 2017. Retail light-vehicles are expected to reach 13.8 million units, a decline of 1.5 percent from 2017. The SUV segment is expected to grow another 3 percent in 2018 to a 45 percent market share while cars will remain under pressure with volume expected to drop 6 percent to a 33 percent share of market. A significant trend in the M&A market is the continued acquisitions by technology companies of businesses in the auto-tech segment. This segment is defined as any company that produces products for autonomous vehicles, connectivity, electric vehicles and vehicle software. Intel’s $14.2 billion acquisition of Mobileye highlights this trend. Intel’s strategy is to combine the resources of both companies to create automated driving solutions from the cloud to the car. Intel estimates the vehicle systems, data and services market to be a $70 billion market by 2030. Select public company metrics Baker Tilly Capital reviewed publicly traded companies in the automotive supplier industry. The companies selected supply original equipment manufacturers (OEMs) in North America. The identified comparable public companies are trading in a fairly wide range with EV/EBITDA multiples from 5.0x to 15.8x and a total industry mean of 8.1x as of December 31, 2017, which is the highest industry mean multiple since the second quarter of 2015 when it was 8.6x. Furthermore, the average EV/EBITDA has steadily improved in line with the S&P 500.

Table 1: Comparable public company analysis – Select automotive suppliers to OEMs in North America

Enterprise

LTM

LTM Gross Profit

Enterprise Value / LTM

Total Debt

3-Year Hist. Revenue CAGR

LTM

EBITDA Margin

($ in millions)

Company Name

Exchange

Headquarters

Value

Revenue Gross Profit EBITDA Margin

Revenue EBITDA EBITDA

Adient plc

NYSE:ADNT

Ireland

9,244 5,278

16,391

1,315 1,144 2,623 2,149 2,120 1,398 1,831

1,073 1,048 2,091 1,279 1,630

8%

7%

0.6x 0.8x 2.1x 1.3x 1.2x 1.9x 1.3x 1.1x 0.7x 0.7x 2.4x 0.5x 3.2x 1.3x 0.8x 0.9x 1.0x 0.6x 0.8x 0.6x 0.5x 0.8x 1.9x 0.8x 0.3x 1.3x 0.4x 0.8x 1.5x 0.4x 0.8x 1.1x 2.4x 1.1x 0.8x

6.0x 5.7x

3.3x 3.8x 2.0x 1.0x 1.3x 1.3x 2.4x 0.6x 1.7x 2.5x 1.6x 1.3x 0.1x 1.0x 3.5x 1.6x 1.2x 0.9x 1.3x 0.9x 1.7x 2.6x 9.5x 1.3x 2.5x 7.0x 2.0x 2.7x 2.3x 1.9x 0.0x 1.3x 2.7x 2.1x 1.7x

0.0%

American Axle & Manufacturing Holdings, Inc. NYSE:AXL

United States United Kingdom

6,266

18% 20% 21% 22% 48% 41% 26% 19% 15% 34% 10% 39% 32% 41% 28% 12% 16% 15% 17% 17% 26% 27% 11% 16% 24% 27% 12% 19% 14% 31% 22% 20% - 9%

17% 16% 12% 17% 18% 14% 15% 12% 11% 17% 35% 15% 10% 13% 10% 16% 10% 10% 8% 9%

19.2% -6.0%

10.6x 10.2x

Aptiv PLC Autoliv, Inc.

NYSE:APTV NYSE:ALV NYSE: BWA

26,617 13,578 12,248

12,884 10,383 9,799 2,893 4,472 3,618 7,209 2,578 52,845 24,234

4.0% 5.7%

Sweden

8.0x 9.6x 8.5x 7.4x 5.9x 7.5x 6.6x 9.0x 8.1x 7.2x 6.7x 7.0x 6.3x 5.5x 5.5x 5.2x 8.8x 8.9x 5.2x 5.0x

BorgWarner Inc. Brembo S.p.A.

United States

525 645

BIT:BRE BME:CIE DB:CON

Italy

5,514 5,935

11.4% 19.0%

CIE Automotive, S.A.

Spain

Continental Aktiengesellschaft Cooper-Standard Holdings Inc.

Germany

57,840 2,420 5,286 6,159 5,657 1,258 7,651 12,134 11,284

13,658

7,927

8.4% 3.7% 2.9% 1.3% 6.1% 9.3% 6.7% 9.6%

NYSE:CPS NYSE:DAN NYSE:DCI

United States United States United States

671

446 787 431 623 143 989

1,076

Dana Incorporated

15.9x

884

Donaldson Company, Inc.

1,909

2,540

Faurecia S.A.

ENXTPA:EO France

Gentex Corporation Gentherm Incorporated Gestamp Automoción, S.A.

NasdaqGS:GNTX United States NasdaqGS:THRM United States

1,795

695 311

986

BME:GEST LSE:GKN

Spain

10,002 13,072

4,130

1,112 1,048 2,103

11.5%

GKN plc

United Kingdom

-

HELLA GmbH & Co. KGaA

DB:HLE

Germany

7,935

8,145

2,274 2,365

7.5% 4.9%

Lear Corporation

NYSE:LEA TSX:LNR TSX:MG TSX:MRE NYSE:MOD

United States

13,240

20,467

819

16.2% 4.2% 0.8% 9.9% 8.3% 5.0% 3.4% 7.5% 3.4% -5.4% -0.8% 2.6% 13.4%

Linamar Corporation Magna International Inc. Martinrea International Inc.

Canada Canada Canada

4,397

5,220

861

22,010

38,946

5,688

4,020

1,472 1,602 1,154

2,943 2,025

498 345 161

308 190

9%

Modine Manufacturing Company

United States

14% 17%

NN, Inc.

NasdaqGS: NNBR United States

620

86

2,827

Schaeffler AG

DB:SHA

Germany

14,014

16,836

4,618

Shiloh Industries, Inc.

NasdaqGS: SHLO United States

363

1,042

118

73 98

7%

10%

12.7x

1,225 4,045

935

83

Superior Industries International, Inc.

NYSE:SUP NYSE:TEN

United States United States

Tenneco Inc.

9,274

1,503 3,698

710

8%

6.8x 6.2x

The Goodyear Tire & Rubber Company

NasdaqGS:GT United States

11,773

15,377

2,137

14% 14% 10% 11% 16% 13% 12% 9%

11.3x

427 203

3,004 1,988

810 245

The Timken Company Tower International, Inc.

NYSE:TKR

United States

4,369

5.0x 7.8x

NYSE:TOWR United States

813

Valeo SA

ENXTPA:FR

France

18,064

22,274

4,171

2,345

11.0x 15.4x

6.8% 5.0% 6.2% 5.7%

Visteon Corporation WABCO Holdings Inc.

NasdaqGS:VC United States

3,588 7,817 9,272 5,935

3,146 3,304

436

293 526

NYSE:WBC

Belgium

1,028 2,045 1,230

$

10,151

$

$

1,238

8.1x 7.4x

$

Mean Median

787

6,266

Source: Baker Tilly Capital Insights and Capital IQ (as of March 9, 2018)

1

Continuing the trend of automotive supplier consolidation seen during the second half of 2017 (H2-2017), as seen in Tables 8 and 9, Dana Inc. (NYSE:DAN) and British supplier GKN plc (LSE:GKN) announced on March 9, 2018 a $6.1 billion deal that would merge GKN's automotive business into Dana. This combination would allow Dana and GKN to leapfrog larger automotive driveline competitors Borg-Warner, Continental and ZF Friedrichshafen, creating the largest driveline supplier in the world at $14.2 billion in revenue. The transaction is valued at 8.1x adjusted EBITDA, which is slightly higher than the 7.4x average EV/EBITDA multiple in the publicly traded powertrain segment below.

Table 2: Comparable public company analysis – Powertrain

Enterprise

LTM

LTM

LTM Gross Profit EBITDA Margin

Enterprise Value / LTM

3-Year Hist. Revenue CAGR

Total Debt

EBITDA Margin

($ in millions)

Value

Revenue Gross Profit

Company Name

Exchange

Headquarters

Revenue EBITDA EBITDA

1,048 1,630

18% 22% 41% 15% 16% 17% 27% 16% 27% 22% 18% -

17% 17% 14% 11%

0.8x 1.2x 1.3x 0.7x 0.9x 0.8x 0.8x 0.8x 0.4x 1.5x 0.9x 0.8x

5.7x 8.0x 8.5x 7.5x 6.7x 5.5x 8.8x 5.2x 6.8x

3.8x 1.3x 2.4x 2.5x 1.6x 1.3x 2.6x 1.3x 2.0x 2.3x 2.1x 2.1x

19.2%

1,144 2,120 1,831 1,076

5,278

6,266 9,799 4,472 7,209

American Axle & Manufacturing Holdings, Inc. NYSE:AXL

United States United States

BorgWarner Inc.

NYSE: BWA

12,248

5.7%

CIE Automotive, S.A. Dana Incorporated

BME:CIE

Spain

5,935 5,286

645 787

19.0%

NYSE:DAN LSE:GKN

United States United Kingdom

2.9%

GKN plc

11,284

13,072

-

1,112

9%

11.5% 16.2% 9.9% 5.0% 3.4% -0.8% 9.2% 7.8%

Linamar Corporation

TSX:LNR

Canada

4,397 1,602

5,220 2,025

861 345

819 190

16%

Modine Manufacturing Company

NYSE:MOD

United States

9%

Schaeffler AG Tenneco Inc.

DB:SHA

Germany

14,014

16,836

4,618 1,503

2,827

17%

NYSE:TEN NYSE:TKR

United States United States

4,045 4,369 6,846 5,282

9,274 3,004 7,718 6,738

710 427

8%

The Timken Company

810

14% 13% 14%

11.3x

$

$

$

1,590 1,144

$

1,019

7.4x 7.2x

Mean Median

803

Table 3: Comparable public company analysis – Automotive components

Enterprise

Enterprise Value / LTM

3-Year Hist. Revenue CAGR

LTM

LTM

LTM Gross Profit

Total Debt

EBITDA Margin

($ in millions)

Company Name

Exchange

Headquarters

Value

Revenue Gross Profit EBITDA Margin

Revenue EBITDA EBITDA

Autoliv, Inc.

NYSE:ALV

Sweden

13,578

10,383

2,149 1,398

1,279

21% 48% 26% 19% 34% 39% 15% 26% 24% 19% 25% 24% 9%

12% 18% 15% 12% 17% 35% 10% 14% 10% 14% 11% 15% 14%

1.3x 1.9x 1.1x 0.7x 2.4x 3.2x 0.6x 1.9x 1.3x 0.8x 0.8x 1.4x 1.3x

10.2x 9.6x 7.4x 5.9x 9.0x 5.5x 8.9x 6.2x 7.8x 9.0x 8.9x 15.9x 12.7x

1.0x 1.3x 0.6x 1.7x 1.6x 0.1x 0.9x 9.5x 7.0x 2.7x 0.0x 2.4x 1.3x

4.0%

Brembo S.p.A.

BIT:BRE DB:CON

Italy

5,514

2,893

525

11.4% 8.4% 3.7% 1.3% 9.3% 4.2% 8.3% 7.5% -5.4% 13.4%

Continental Aktiengesellschaft Cooper-Standard Holdings Inc. Donaldson Company, Inc.

Germany

57,840

52,845

13,658

7,927

NYSE:CPS NYSE:DCI

United States United States

2,420 6,159 5,657

3,618 2,578 1,795

671 884 695

446 431 623

Gentex Corporation

NasdaqGS:GNTX United States

Magna International Inc.

TSX:MG

Canada

22,010

38,946

5,688

4,020

NN, Inc.

NasdaqGS: NNBR United States

1,154 1,225

620 935

161

86 98

Superior Industries International, Inc. The Goodyear Tire & Rubber Company

NYSE:SUP

United States

83

NasdaqGS:GT United States

11,773 18,064 13,218

15,377 22,274 13,842

3,698 4,171 3,023 1,398

2,137 2,345 1,811

Valeo SA

ENXTPA:FR

France

Mean Median

$

$

$

$

6.0% 7.5%

6,159

3,618

623

Table 4: Comparable public company analysis – Body and structural

LTM

LTM Gross Profit

Enterprise Value / LTM

Total Debt

Enterprise

LTM

3-Year Hist. Revenue CAGR

EBITDA Margin

($ in millions)

Revenue EBITDA EBITDA

Company Name

Exchange

Headquarters

Value

Revenue Gross Profit EBITDA Margin

BME:GEST TSX:MRE

Spain

7,651 1,472

10,002

4,130

989 308

41% 17% 11% 12% 20% 15%

10% 10%

0.8x 0.5x 0.3x 0.4x 0.5x 0.5x

7.2x 5.2x 5.0x 5.0x 5.6x 5.1x

3.5x 1.7x 2.5x 1.9x 2.4x 2.2x

9.6% 0.8% 3.4% 2.6% 4.1% 3.0%

Gestamp Automoción, S.A. Martinrea International Inc. Shiloh Industries, Inc. Tower International, Inc.

Canada

2,943 1,042 1,988 3,994 2,465

498 118 245

NasdaqGS: SHLO United States NYSE:TOWR United States

363 813

73

7%

203 393 256

10%

$

2,575 1,143

$

$

1,248

$

9%

Mean Median

371

10%

Table 5: Comparable public company analysis – Electronics

Total Debt

LTM

LTM

LTM Gross Profit

Enterprise

Enterprise Value / LTM

3-Year Hist. Revenue CAGR

EBITDA Margin

($ in millions)

Revenue EBITDA EBITDA

Revenue Gross Profit EBITDA Margin

Exchange

Headquarters United Kingdom

Value

Company Name

2,623 2,274

2,091 1,048

20% 28% 14% 31% 23% 24%

16% 13%

2.1x 1.0x 1.1x 2.4x 1.6x 1.6x

10.6x

2.0x 1.2x 1.3x 2.7x 1.8x 1.7x

-6.0% 7.5% 6.8% 5.0% 3.3% 5.9%

12,884

Aptiv PLC

NYSE:APTV

26,617

HELLA GmbH & Co. KGaA

DB:HLE

Germany

7,935 3,588 7,817

8,145 3,146 3,304 6,870 5,725

7.0x

Visteon Corporation WABCO Holdings Inc.

NasdaqGS:VC United States

436

293 526 989 787

9%

11.0x 15.4x 11.0x 10.8x

NYSE:WBC

Belgium

1,028 1,590 1,651

16% 14% 14%

$

11,489

$

$

$

Median Mean

7,876

Table 6: Comparable public company analysis – Interior

Total Debt

Enterprise

LTM

LTM

LTM Gross Profit

Enterprise Value / LTM

3-Year Hist. Revenue CAGR

EBITDA Margin

($ in millions)

Revenue EBITDA EBITDA

Revenue Gross Profit EBITDA Margin

Company Name

Exchange

Headquarters

Value

Adient plc

NYSE:ADNT

Ireland

9,244

16,391 24,234

1,315 2,540

1,073 1,909

8%

7% 8%

0.6x 0.5x 1.3x 0.6x 0.7x 0.6x

6.0x 6.6x 8.1x 6.3x 6.7x 6.4x

3.3x 1.3x 1.0x 0.9x 1.6x 1.1x

0.0% 6.1% 6.7% 4.9% 4.4% 5.5%

Faurecia S.A.

ENXTPA:EO France

12,134

10% 32% 12% 15% 11%

Gentherm Incorporated

NasdaqGS:THRM United States

1,258

986

311

143

15% 10% 10%

Lear Corporation

NYSE:LEA

United States

13,240

20,467 15,519 18,429

2,365 1,633 1,840

2,103 1,307 1,491

$

8,969

$

$

$

Mean Median

10,689

9%

Source: Baker Tilly Capital Insights and Capital IQ (as of March 9, 2018)

2

The table below shows EV/EBITDA multiples for all segments since the start of 2013. All automotive supplier segments continue to trade significantly below the value of the S&P 500 EV/EBITDA multiple. Multiples in all segments, with the exception of body and structural, have followed the S&P 500 index in H2-2017.

Table 7: Average historical trading multiples (EV/EBITDA)

Automobile Suppliers

Interior

Body & Structural

S&P 500 Index

PowerTrain

Components

Electronics

14.0x

12.5x

12.0x

10.6x

10.0x

9.1x

8.1x 7.5x

8.0x

6.9x

6.0x

5.6x

4.0x

Mar June Sept Dec Mar June Sept Dec Mar June Sep Dec Mar

Jun Sept Dec Mar

Jun Sept Dec

2013

2014

2015

2016

2017

Note: Multiples are based on average enterprise values for each quarterly period.

Select H2-2017 transactions Table 8 highlights selected North American automotive supplier industry transactions with numerical data that occurred during H2-2017. The industry has seen relatively consistent acquisition activity over the past two years. Publicly available valuation details are limited.

Table 8: Selected closed transactions (July 1 – December 31, 2017)

Transaction Value

EV / Revenue

EV / EBITDA

Closed Date Target Company

Buyers/Investors Genuine Parts Co.

11/2/2017

Alliance Automotive Group SAS

1,701

-

- - - - - -

10/31/2017 FTE Automotive Gmbh

Valeo SA

819 290 360 145 132 280 533 290

1.6x

Delhi Automotive PLC Wabash National Corp. Wabco Holdings Inc.

-

10/24/2017 Nutonomy

9/27/2017 9/19/2017 7/17/2017 7/3/2017

Supreme Industries Inc. R.H. Sheppard Co., Inc.

1.1x 1.1x 3.2x 2.7x 1.9x 1.6x

13.2x

Sevcon, Inc

BorgWarner Inc

The Timken Company

Groeneveld Groep B.V.

Mean

$ $

13.2x 13.2x

Median

Source: Capital IQ (as of March 9, 2018)

3

Table 9: Other selected closed transactions (July 1 – December 31, 2017)

Acquiring Company

Date

Target Company

12/07/2017 11/07/2017 10/24/2017 10/23/2017 10/17/2017 10/10/2017 10/02/2017 09/19/2017 09/07/2017 08/01/2017 07/10/2017 07/02/2017

Transportation Power, Inc.

Meritor, Inc. (NYSE:MTOR) Metaldyne Performance Group Inc.

TorqTek Design and Manufacturing LLC TrimParts, Inc., Carpet Division

Auto Custom Carpets, Inc.

Rocore Holdings, Inc.

Triton

InEvit Inc.

SF Motors Inc. Truck Hero, Inc.

Superlift Suspension Systems Bus Air Manufacturing, LLC Clarkston Motors, Inc. Schafer Gear Works, Inc. Arnott Industries, Inc. GT Covers

ProAir Holdings Corporation Covercraft Industries, LLC

-

HBM Holdings Company

Calera Capital

Jason Industries Inc., Truck Cap Division

ATC Truck Covers, Inc.

Source: Capital IQ, public news sources and Baker Tilly Capital, LLC research (as of March 9, 2018)

4

All information and analysis in this report is provided by Baker Tilly Capital, LLC, which provides investment banking services before, during, and after a sell-side or buy-side transaction. Baker Tilly Capital, member FINRA and SIPC, is a wholly- owned subsidiary of Baker Tilly Virchow Krause, LLP. RubinBrown and Baker Tilly Virchow Krause are independent members of Baker Tilly International, the world’s ninth largest network of accountancy and business advisory firms.

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