Motherson Sumi acquires 80% stake in German co Peguform

Motherson Sumi Systems Ltd (MSSL) plans to acquire 80 per cent stake in the €1.37-billion German auto component maker Peguform.

The proposed acquisition, approved by the MSSL board on July 13, would be done through a special purpose vehicle created for the purpose.

While MSSL Vice-Chairman, Mr V.C. Sehgal, refused to disclose the deal size — which, he said, will be made known in September-end — analysts reckon that it would be in the range of $650 million. The acquisition would also involve the Delhi-based Samvardhana Motherson Group taking a 50 per cent stake in Wethje Carbon Composite, which is part of Cross Industries AG that owns 100 per cent in Peguform.

Peguform is Germany's second largest supplier of door panels and its third largest instruments panel supplier. It is also the market leader in bumpers in Germany and cockpit assemblies in Spain.

MSSL plans to undertake the acquisition jointly with Samvardhana Motherson Finance Ltd (SMFL), which holds 36.64 per cent in the former. While MSSL will hold 51 per cent in the SPV, SMFL would own the balance 49 per cent.

The funding of the acquisition will be done completely through debt. “We have tied up with Indian banks and they will raise the monies outside India in foreign currency,” said Mr G.N. Gauba, CFO of MSSL.

Cross industries would retain 20 per cent stake in Peguform even after the acquisition goes through. MSSL is India's largest manufacturer of car rear-view mirrors and a leader in automotive wiring.

“Peguform caters to the middle and upper segment, while we are present in the lower segment. Their aesthetic offerings will only add to our product portfolio. After the acquisition, 80-85 per cent of our revenue will come from outside India,” Mr Sehgal told presspersons here on Wednesday.

Mr Sehgal projected the Samavardhana Motherson Group's revenues for the current fiscal at nearly $2.25 billion, with $10 billion being targeted by 2014-15.

Peguform's 2010 sales were at €1.37 billion and EBITDA at €66.87 million. Mr Sehgal said Peguform is expected to close this calendar year with revenue of €1.6 billion.

“The restructuring of Peguform began in the aftermath of the Lehman crises. Since 2010 we have been growing at 20 per cent annual growth rate. Our joint development experience with Bajaj motivated us to search for partners to achieve a global footprint. We always had the technology but not the resources to scale up our operations and through this acquisition we want to achieve the same besides exploring the Indian markets,” said Mr Stephen Pierrer, CEO, Cross Industries.

“Assuming revenue growth is 10 per cent, margin improves from 5-8 per cent and the deal gets done at five times enterprise value/EBITDA, the potential size of Peguform is $800 million. MSSL's cost for acquisition will be roughly $320 million,” said Mr Basudeb Banerjee, Auto Analyst, Quant Capital.

“The synergistic benefits from this deal will help MSSL improve down the line, based on increasing revenue per car,” he added.

This acquisition will lead to creation of 3,000 additional jobs in India, with new plants planned in Chennai and Tapukara in the Gurgaon-Manesar belt.

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