巴克莱-美股-汽车与汽车零部件行业-美国汽车与汽车零部件行业：后周期汽车零部件LBO是可能的-2019.9.5-34页.pdf
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Equity Research
5 September 2019
FOCUS
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with
companies covered in its research reports. As a result, investors should be aware that the
firm may have a conflict of interest that could affect the objectivity of this report. Investors
should consider this report as only a single factor in making their investment decision.
PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 25.
Restricted - External
U.S. Autos & Auto Parts
Late cycle auto part LBOs are possible
LBOs could provide a floor to valuations. Investors have begun to take note after the
announcement of two deals this year (Magnetti Marelli and Tower) seems to belie
common wisdom that it’s too late in the cycle for ‘take private’ transactions. Using a
back of the envelope LBO framework, we see the greatest potential in AXL.
Late cycle auto parts deal history is less bad then investors think. Auto parts don’t
meet many of the common criteria for LBOs and public investors (and we think PE
sponsors) point to late cycle deals from the mid-2000s as proof that auto parts LBOs
won’t work. But two the of deals (Dana and Tower) appear to have eventually attractive
IRRs even in the face of the Great Recession, and another set of transactions (the rollup
of metal forming into HHI and Metaldyne) was highly successful. Some key success
factors that emerge include a) buy cheap (of course), b) think about platforms to buy
even cheaper later, and c) have follow-on funds available for bolt-on/debt buyback.
First-cut screen for companies to evaluate further. Using a screen of a) equity market
cap <$3bn and b) stock price under 50% of one year high, yields 4 companies to
examine in more depth: AXL, DLPH, GTX and ADNT.
AXL cash flows make it the most promising candidate. We examine AXL, DLPH,
ADNT and GTX for potential returns – both in a base case as is, base case with asset
sales, and a downside recession/recovery scenario. To examine the LBO, we created
‘back of the envelope’ LBO models for each supplier.
• AXL may be the best all-around candidate for a take–private transaction,
largely due to its strong cash flow generation (which is still strong despite
recent missteps). Returns could be enhanced further by selling parts of the
Metaldyne business it acquired, even if for less than what was originally paid.
• Conversely, weak cash flows at DLPH make it less attractive as an ‘as is’ target
– although if a quick sale of its electronics businesses could be done, IRR
would become attractive (even with a low exit multiple of 3.0x on the
remaining ICE business).
• ADNT may offer attractive returns, but high leverage on consolidated EBITDA
makes a transaction less likely. Our analysis also highlights the drag from the
cash burn at SS&M – which means value would be enhanced even if ADNT
had to pay a new owner (say $300mn) to take over parts of SS&M.
• GTX’s strong cash flow generation (which also supports higher initial
leverage) could make it an interesting target, even with multiple derating due
to concerns about ICE longevity. Although with a focused portfolio, we do not
see the potential for asset sales and its spinoff lockup extends until April 2020.
INDUSTRY UPDATE
U.S. Autos & Auto Parts
NEUTRAL
Unchanged
For a full list of our ratings, price target and
earnings changes in this report, please see
table on page 2.
U.S. Autos & Auto Parts
Brian A. Johnson
+1 212 526 5627
BCI, US
Steven Hempel, CFA
+1 312 609 7260
steven.hempel@barclays.com
BCI, US
Jason Stuhldreher
+1 312 609 8183
Jason.Stuhldreher@barclays.com
BCI, US
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