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Who's Buying Whom?


1/1/2004
By Jon S. Owens

Who owns the suppliers of today? New owners include leveraged buyout firms, putting a new spin on the old consolidation trend.
 

In the wake of Danas announcement to sell off its aftermarket businesses comes the speculation of whom will buy it. Water cooler conversations in the office havent exactly been at a fevered pitch. Thats a dramatic change from just a few short years ago when SPX was trying to make a hostile purchase of Echlin (which ultimately ended up in the hands of Dana), or when Federal-Mogul was buying up companies as part of former CEO Dick Snells major consolidation plan.

Those were the good old days of major aftermarket acquisitions. Now, were left to ponder the fate of the Dana Automotive Aftermarket Group. The big question is: Who among the current base of manufacturers is a candidate to make such a large acquisition? It might make a nice acquisition for aftermarket newcomers like Delphi or Visteon, two huge organizations that have strong OE ties and are looking to grow. But I dont anticipate that either will be able to do it, as both are striving to make more efficient use of their existing manufacturing capacities and not take on additional assets that may not be fully utilized.

There are other names to drop, but why? Its just not likely to happen. What is likely to happen, though, is that a leveraged buyout firm will get involved and purchase these long-time aftermarket brands. Companies like The Blackstone Group, The Carlyle Group, Heartland Industrial Partners and Riverside Company own or are large shareholders in such well-known aftermarket companies as J.C. Whitney, American Products Co. (APC), TRW Automotive, Metaldyne, Airtex, Wells, Pioneer and Neapco.

The aftermarket is changing indeed, in more ways than one. Shareholder demand (i.e. stock price performance) is primarily what drives our markets public players. It would be interesting to see what percentage of the markets suppliers and major distribution entities have remained private companies, versus 10 or 20 years ago. This shift of private funding to public funding has forever altered our markets foundation. Its precisely why leveraged buyout firms are needed to execute the aftermarket acquisitions of today. While the Dana Automotive Aftermarket Group may look like a real plum to the untrained eye, it may not appear so sweet to the "expert" analysts who dictate stock price movement.

It always has looked like a case of "the tail wagging the dog" to me. What does an analyst know about the strength of the Wix brand in our market? What does the analyst know about the culture and values of the great people who work for these aftermarket institutions? I long for the days where customers came first, shareholders (if there were any) second and analysts (relative newcomers in our countrys industrial progression) a distant third. Every customer satisfaction study that Ive ever read says that happy, repeat customers buy more from their supplier of choice, pay more for what they buy and buy more often.

That sounds like more profit to me. And isnt that what shareholders are looking for in the first place?













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