Euro suppliers go shopping in US

Tony Lewin, Automotive News

Detroit, Michigan - Big European suppliers are shopping for acquisitions in the United States.

A weak dollar and rising market shares for Asian and European automakers in the United States make investments here increasingly attractive. European suppliers see an opportunity because of the financial difficulties that have hit US suppliers.

Acquisition budgets

Valeo and many other European suppliers plan to keep buying.

"We have the capability to spend up to Euro 2000 million in the next 18 months," Valeo CEO Thierry Morin told Automotive News Europe.

Continental Chairman Manfred Wennemer has earmarked up to $5.12 billion for acquisitions. He has identified Goodyear Engineered Products as a perfect North American complement to Continental's ContiTech's European non-tyre rubber business.

ZF CEO Siegfried Goll said the supplier would like to buy something in the range of about $640 million to $1.28 billion.

Faurecia did not specify a budget, but plans to spend $300 million in the United States this year to add five plants and refurbish another.

Distressed US suppliers are offering dozens of plants at deep discounts. But most Europeans suppliers are avoiding operations with embedded high labour costs and potential legacy costs, said Jim Gillette, director of supplier analysis at CSM Worldwide in Grand Rapids, Michigan.

"It may be tough to sell those plants," Gillette said. "Greenfield sites win out when European and Asian companies come over here. Most of the building is going to be new."

Valeo's Morin agrees.

"There are opportunities but we will be very selective," he said. "Labour unions must be willing to adapt."

Strategic buying

Many European suppliers already made North America acquisitions in the 1990s and are seeking strategic buys, especially units available because the seller is leaving a noncore sector, said Paul McCarthy, an analyst at PricewaterhouseCoopers automotive advisory in Stuttgart.

"The biggest single issue is the customer portfolio - the quality of the future cash flow," he said. "Some of these investments are absolutely worthwhile. There's a lot of risk, but there are some diamonds in the rough."

Morin started considering potential US acquisitions last July. Since then the value of the euro against the dollar has improved to $1.28, from $1.20, giving a 6.6 percent boost the buying power of European firms.

"It's a great time to buy things right now," said Gillette. "Very rarely do you get a bargain like this."

Competitive bidding

But European suppliers are not the only buyers. Asians, especially Indian suppliers, are seeking North American companies in the commodity end of the spectrum.

More directly, Europeans must compete against North American equity players, said Philip Wylie, automotive sector leader at PricewaterhouseCoopers in London.

Said Wylie: "Over the last two or three years, private equity groups have been outbidding trade buyers."

From Automotive News (A Crain publication)