Summary
While we see most of the press regarding the fate of Chrysler and GM, there are many Tier suppliers to the automotive OEM's that will be transformed in the next several months as well. How can these targets for acquisition be best recognized?
Analysis
The news that Edscha will be sold in the next 2 to 4 months comes as little surprise. Edscha matches the fingerprint of the more than 500 suppliers globally who will enter bankruptcy or become acquisition targets through the remainder of 2008. Another example that demonstrates this fingerprint is TMD Friction Holding, the world's largest supplier of brake pads, being acquired by Pamplona Capital Management.
The fingerprint of potential acquisition targets is pretty consistent.
Both Edscha and TMD Friction Holding are relatively smaller suppliers with a narrowly focused product portfolio in comparison to a Continental, Magna, or TRW. Edscha produces hinges and roofing systems while TMD supplies braking elements. Many other suppliers fit this profile in terms of products offered to the OEM's.
The suppliers may also have a significant portion of their customer base in one Country or Continent. For example, their products are found primarily in German OEM products or their sales volume is 50%+ from GM and/or Ford. Edscha customer base is primarily German. Lear has more than 50% of sales volume coming through the American Big Three. Companies with a significant portion of sales in one market become attractive partners or acquisition targets for other suppliers wishing to enter those markets.
The most attractive fingerprint will be those suppliers that are small in relative terms of sales dollars, have a limited product portfolio, but have established a customer presence in Europe, Asia, and the United States. As sales volumes continue to remain weak for most of 2009, those suppliers will become increasingly more attractive acquisition targets as the year progresses.
