KGP

Briefing #9 – Strategic Positioning —M&A in Commercial Vehicle and Non-Road (NRMM) Sector

Tuesday, March 06, 2018

Paris Kiernan, Senior Analyst

KGP’s Briefings for the Commercial Vehicle and Non-Road Mobile Machinery Markets

Download this briefing in PDF format here: Briefing Paper No 9 CV NRMM Strategic Positioning – A review of M&A in 2017 06 03 18

As the automotive world prepares for the most significant changes in decades, OEMs and Tier 1 Suppliers are beginning to strategically position themselves in order to be successful in the ‘new-look’ industry. Joint ventures, mergers and acquisitions will play a vital role in this, OEMs and suppliers which fall behind in strategic investment, could suffer in the coming years.

This briefing reviews 2017’s M&A activity and high-profile JVs and also introduces KGPs financial analysis  of both the CV and NRMM markets.

Top 10 M&A of 2017

Figure 1 Top 10 M&A in 2017 ($/m)

In the NRMM market, the biggest acquisition of 2017 was John Deere purchasing Wirtgen Group for $5.2 billion. Wirtgen specialises in road construction equipment with annual sales of €2.59 billion in 2016. The acquisition of this German based company supports Deere’s long-term aim to expand both the agriculture and construction business globally.

Komatsu completed their acquisition of U.S. based manufacturer of mining machinery Joy Global in April 2017 for approximately $3.7 billion including and debt. The acquisition allows Komatsu to offer a full range of mining solutions and adds over 10,000 employees with strong mining industry experience and knowledge. For the year ending October 2015, Joy Global generated sales of $3.2 billion with a net loss of $1.2 billion.

In April 2017, AAM completed their $3.3 billion acquisition of Metaldyne Performance Group (MPG) who generated net sales of $3.0 billion in 2015. MPG produce components for powertrain and safety solutions for light, commercial and industrial OEMs. The acquisition will broaden AAM’s capabilities as a Tier 1 automotive supplier. An additional benefit of the acquisition is the reduction of reliance on General Motors who are currently AAM’s largest customer generation revenue of $7 billion for the company.

Atlas Copco’s re-focussing saw it sell its road building business to the larger competitor, Fayat Group in mid-2017.

Some of the most interesting M&A activity of the past couple of years has been the sale of Terex’s construction machinery business to a variety of manufacturers. The sale started back in in 2009 when Bucryrus purchased Terex’s mining division, and continued in 2014 with Volvo buying Terex’s hauler business for $160m. Then in 2016 three acquisitions occurred with Yanmar purchasing the compaction equipment business in Germany for $60m; Mecalac buying the backhoe loader and site dumper business in Coventry; and Manitou acquiring Terex Equipment Private Limited based in India. Manitex also purchased the 49% of ASV, a skid-steer manufacturer that partly owned with Terex. In addition to construction equipment, Konecranes has bought Terex’s material handling and port solutions business for $795m. The sale of the construction machinery business was to allow Terex to focus on cranes, access equipment and crushing/screening equipment. Although 2017 sales were down 1.8%, due to the M&A activity, fourth quarter sales were up 9% in comparison to 2016 for Terex signalling strong performance in the global crane market.

Hitachi is to increase it’s North American sales network, to promote the launch of its Social Innovation Business, along with strengthening its air compressor business by acquiring manufacturer Sullair. The acquired company will cost a value of $1.245 billion which Hitachi will pay to the parent Accudyne Industries.

Dana acquired 80% of the power-transmission and fluid power business of Brevini Group with the remainder to be purchased by 2020. The total value equates to $325m and will expand Dana’s current product portfolio in the NRMM. The acquisition will also benefit Dana’s initiatives for hybridisation and electrification. Dana has also purchased the production operations of U.S. Manufacturing Corporation for $100m, this will bring new processes technologies for Dana’s light-weighting products.

Timken growth strategy has been M&A focussed for the last 7 years, after their first major acquisition in 2010. Since then the company has spent over $1 billion with their largest acquisition this year purchasing Groeneveld Group, supplier of on- and off-highway lubrication solutions, for $280 million. In addition to Groeneveld Group, Timken has also acquired Torsion Control, ABC Bearings and PT Tech in 2017 along with Lovejoy and EDT Corporation in the previous year.

BorgWarner, who serve both the CV and NRMM market, acquired Sevcon a global player in electrification technologies. The acquisition totalled $200m and will aid BorgWarner in providing propulsion systems for all applications: combustion, hybrid and electric.  In a similar vein, albeit for what was likely to be a lower, but undisclosed transaction price, Federal Modul acquired Controller Powertrain Technologies, a spin off of powertrain technologies from Visteon back in 2007.

WABCO has purchased R.H. Sheppard, who specialise in steering solutions for the CV market, for $145m. This will benefit WABCO’s intention of providing break through technology for active steering to the CV market.

Mahindra have entered the Turkish tractor market by acquiring Erkunt Traktor the fourth largest tractor manufacturer in Turkey holding 6% market share. In 2016, the Turkish company sold 4700 tractors with revenue of $88m.

Other M&A in the AG sector has been focussed on implements, with many transactions over the past few years.  AGCO closed its acquisition of Lely’s forage business in October 2017, acquiring the brand and its Dutch plant.

On the CV side Knorr-Bremse made seven acquisitions in 2016 adding and extra €1 billion in sales for the company. Three of the acquisitions were commercial vehicle specialised in commercial vehicles: GT Group a UK supplier of engine air management systems, Bosch’s CVS transmission in Japan, tedrive Steering Systems based in Germany allows Knorr-Bremse to enter the steering business. The acquisition of Vossloh Kiepe who are mainly in the rail industry also add to Knorr-Bremse commercial vehicle business as they provide electrical systems for buses.

Knorr-Bremse hoped to acquire the Swedish based  brake system manufactures for commercial vehicles. However the bid has been terminated as the deal could not be completed inside the current acceptance period after Haldex withdrew their support for the merger. However, the company has successfully entered a joint venture with DongFeng to produce AMTs for the Chinese CV market.

Joint Ventures

Some interesting joint ventures have been agreed during the last year, especially in the CV market, with Navistar and VW and Eaton and Cummins partnering as well as the re-combining of Ashok Leyland and Hino. In the NRMM market, the Liebherr and Kamaz joint venture looks an exciting prospect.

Volkswagen truck and bus purchased a 16.6% stake in North American truck manufacturer Navistar in September 2017, after agreeing an alliance in March. The partnership will result in an all-electric medium-duty truck launched by 2019 in North America. The two companies will also collaboratively work on digitisation and connection of trucks and big bore diesel powertrains. The alliance is expected to save the two companies $500 million in the first five years. Navistar and Volkswagen already had a co-operation to produce the Navistar Big Bore engine, which was originally 11 and 13l, with the 11l later dropped.

Ashok Leyland continue their long-term partnership with Hino to add Mutual Cooperation Agreement in which Ashok Leyland will use Hino’s engine technology to develop Euro VI and BS VI engines. Hino will strengthen its competitiveness in India by using Ashok Leyland to supports their engine parts procurement

Eaton and Cummins have joined together to form Eaton Cummins Automated Transmission, with Cummins to pay $600m to Eaton for 50% of the JV. The JV will benefit Cummins’ growth strategy to increase product offerings and extend their global presence. The JV will provide transmissions for the medium and heavy-duty CV market, with Endurant being the first product developed by the JV. Cummins recently also went on to acquire Brammo, a CV battery supplier in October 2017 and Johnson Matthey’s battery business at the end of January 2018, strengthening its intent to no longer be considered ‘just’ an engine producer (even though it has strong component companies already in the exhaust, filter and turbocharger business).  On the transmission side Valeo also finally completed the acquisition of FTE Automotive, agreed in 2016.

Liebherr and Kamaz’s JV started production January 2018 for their jointly developed 6-cylinder diesel engine. The JV engine will be the most advanced engine family for KAMAZ as they seek to enter new markets and optimise products for customers.

Spin-Offs

During 2017 there was a number of companies re-positioning in the supply chain.  In late 2017 Delphi Automotive split itself into  Delphi Technologies, focussed on powertrain systems, and Aptiv Plc on autonomous vehicle technologies.

Bosch Automotive sold its conventional alternator and starter business to a Chinese manufacturer, ZMJ, with the division being renamed SEG Automotive under the new parent.

More is to come in 2018 as Honeywell splits the company, with its Turbocharger business to become a standalone entity separate from the aerospace and domestic business units.  GKN’s future is also uncertain at the time of publication.

Impact…

With the growing pressure of clean air, TCO and technology advancements forcing society and OEM/operators drivers to converge, we are seeing M&A and JV intensifying as suppliers and OEMs are forced to work together in order to meet future market requirements. Companies are becoming more vertically integrated and supply chain relationships are becoming more frequent and closer.

The electrification hype is fuelling investments, for example, with both Cummins and Deutz both acquiring companies who specialise in electronics in 2017/8 we expect to see a real shift in the supply chain for electrification in both the CV and NRMM markets. A briefing focused on this topic will be realised in April along with KGP’s new hybrid and electric study.

Its an interesting time for the players in the industry as they need to assess an unpredictable future market in order to correctly time investments and enhance production portfolios. OEM and suppliers strategy could reap massive rewards  or very damaging losses as the industry changes over the next decade… only time will tell who these winners and losers will be.

Meet us!

KGP will be attending various industry events in Spring 2018. Contact us to arrange a free consultation on Single Client, Multi-Client and Special Reports at any of the following:

Intermat – 23rd to 28th April – Paris, France

Integer Europe – 26th to 28th June – Brussels, Belgium

We can also prepare a client specific webinar to introduce our services and provide an industry overview.

New Products in 2018

Non-Road Mobile Machinery Electrification and Hybridisation – A Critical Impact Report

Non-Road Mobile Machinery Electrification and Hybridisation Production Forecast

Commercial Vehicle Electrification and Hybridisation – A Critical Impact Report

Commercial Vehicle Electrification and Hybridisation Production Forecast

Download this briefing in PDF format here: Briefing Paper No 9 CV NRMM Strategic Positioning – A review of M&A in 2017 06 03 18

Get Back