Fred Hubacker: Insights on IAC’s Potential New Strategy – Crain’s Detroit Business
Crain’s Detroit Business features Fred Hubacker’s insights on International Automotive Component Group’s next business play.
With the exit of CEO James Kamsickas to Dana Holding Corp., International Automotive Components Group may be seeking a new direction.
IAC, with its corporate headquarters in Southfield and incorporation in Luxembourg, hired Robert “Steve” Miller to replace Kamsickas, effective Aug. 7.
Miller, former executive chairman and CEO of Delphi Automotive plc during its Chapter 11 bankruptcy last decade and board member at Federal-Mogul Corp., is known for restructuring struggling suppliers.
But is the Wilbur Ross-controlled IAC in trouble? Is it a buyer or seller?
Sales don’t indicate struggles — IAC reported revenue of $5.9 billion in 2014, up from $5.2 billion in 2013 — but experts say the low-margin interiors business is ripe for consolidation and Ross needs a play to improve returns.
“Interiors has been on the M&A front for some time,” said Alicia Masse, managing partner at Southfield-based advisory firm Alderney Advisors LLC. “In interiors, companies are deciding to get out of the business, and who sits in that CEO’s chair can make the difference.”
Milwaukee-based Johnson Controls Inc. exited the automotive interiors business in 2014 after it spun off its $3 billion unit into a joint venture with Shanghai-based Yanfeng Automotive Trim Systems Co. JCI holds a 30 percent stake. The supplier also said earlier this year it was seeking options to ditch its seating business, exiting automotive all together due to the capital-intensive nature of the industry.
IAC maintains it’s in grow mode.
“We have been described as a consolidator in the interiors segment with a total of 17 acquisitions since we were established in 2006,” David Ladd, executive director of marketing and communications at IAC, said in an email. “The role we play going forward will be determined by Mr. Miller in the months ahead.”
Ross even sought to quell the idea that IAC might be in turnaround mode.
“Steve’s corporate roles often have drawn upon his turnaround experience, but that is not the case here,” Ross said in a written statement last week. “Our interest is in his automotive experience and relationships.”
IAC failed to launch a planned $115 million initial public offering in 2011 and delayed it again in 2013 during market turmoil in Europe. The supplier planned to relaunch the IPO last year, but never followed through.
Fred Hubacker, executive director of Birmingham-based turnaround and advisory firm Conway Mackenzie Inc., said Ross is looking at all strategies to exit the auto business.
“Wilbur is frustrated that he couldn’t launch that IPO or otherwise cash out of IAC since margins haven’t gotten better,” Hubacker said. “Miller, the consummate deal guy, is coming in to make a deal, … look for a sale or look for a merger, trying to find a way for Wilbur to exit this investment the best way he can.”
IAC made its last acquisition in July 2013, when it took a stake in South African joint venture IAC-Feltex (Pty) Ltd., a maker of automotive flooring, acoustics and trim components.
Under Kamsickas, IAC passed up opportunities to acquire interior trim operations sold by Magna International Inc., Visteon Corp. and JCI.
If IAC is now looking for deals, it’s a good time to do it, Mark Wakefield, a managing director of consulting firm AlixPartners LLP in Southfield, told Crain’s sibling publication Automotive News.
“Money is cheap, and (investors) are interested in autos,” Wakefield said. “Companies are getting pretty good cash flow.”
If recent deals are any indication, the market is ripe.
Last week, Auburn Hills-based BorgWarner Inc. said it entered a definitive agreement to acquire Pendleton, Ind.-based Remy International Inc. for $29.50 a share, or roughly $950 million.
Magna also announced last week it would buy Germany’s Getrag Group, the world’s largest supplier of transmission systems, for $1.9 billion. Getrag operates its North American headquarters in Sterling Heights and also operates a joint venture with Ford Motor Co.
Kamsickas, as the incoming CEO of Maumee, Ohio-based Dana, has a clear mandate from the board to boost revenue and make acquisitions.
In a July 13 statement, company Chairman Joseph Muscari approvingly noted his new CEO’s “successful integration of a number of strategic acquisitions” in his job as president and CEO of IAC.
“We’re seeing consolidation in the supply space,” Masse said. “There have been several deals lately where companies are filling gaps in their lineup and saving on significant development costs.”
While it remains unclear what direction Miller will take IAC, a new strategy will be taken, Masse said.
“(Ross) clearly made a move to find someone with incredible experience,” Masse said. “He wants someone that will devise a very strategic end game … and that could make all the difference.”