Amtek Auto declared German forging company Zelter innocent in its 2005 global acquisition. The Zelter business has been under pressure for the past three years. March 2014: Amtek acquires the Kueppeper Group, Germany, a group of foundry processing components. Since the acquisition, the latter’s EBITDA margin of 7.4% improves from 7.4% to 10.9% due to cost savings of $360 million euros.

The learning curve is complete. Between 2005 and 2010, Indian auto parts companies made 68 global acquisitions and invested $1 billion. In the next five years, they made about 28 events International acquisitions worth $1.21 billion (disclosing only the value of the deals).

There is plenty of evidence that the second wave of acquisitions performed far better than the first. What has changed? How are Indian component makers tackling global acquisitions? Warning this is the first lesson Arvind Dham, CMD of automotive ancillary company Amtek, has learned from the two acquisitions.

“We have never paid much more than the first round in our recent acquisitions,” says Dham Between the years 2008 and 2008, Amtek made nearly 15 Each acquisition amounted to between $70,000,000 and $150 million. The second wave of acquisitions between 2010 and 2015 was larger, about $400 million to $500 million, but each was more cautious.

In the second wave, Indian companies succeeded in securing better due diligence, deal opportunities, integration of acquired companies and better financing. Motherson Sumi Pankajajaj Mittal said:

This wave has also helped Indian companies gain access to more global clients through acquisition of businesses. Uno Minda GroupCMD NK Minda said that the acquisition of Clartonon Horn in Spain for €8 million will help them win more business through existing customers like Volkswagen and BMW.

Minda expects the investment to be recouped within six to seven years, with integration being key. “The main objective of an international deal is to expand market penetration, capabilities or product lineup through technology,” said Sridharr Venkatachari, partner, All Rich India. “The integration deal was well planned, executed and proper due diligence was carried out.” The acquisition is expected to create synergies. ‘

Motherson Sumi, Minda and Amtek secondary specializations have been relatively more successful than pioneers such as Bharat Forge and Sona Xiaoyang. After an initial push for global acquisitions, the latter have diversified into non-core areas or created new business units. For example, Bharat Forge in 2005 to 2010 in the last few years, a large number of overseas acquisitions are increasing investment in non-automotive business, while Sona Koyo it is in consolidation mode.

Across the industry, some of the early companies struggled with the wave of acquisitions between 2005 and 2010 2000. Jayant Davar, Managing Director, Sandhar Technologies “The company got cheaper contracts, but due to cultural differences and labor issues, it prevented smooth integration of the business.”

Ananth Narayanan, Senior Partner, McKinsey He said, “As electronics and software become more important in the future, there will be opportunities to acquire non-core or non-performing assets, but the value of these assets is likely to increase further.” large,” he said. This is due to the slowdown in the domestic economy, the EU market recovery in the United States and China may also become active acquirers.

Here are the lessons for Indian component manufacturers:

Smarter financing/p Learning from the mistakes of the first round of global acquisitions, Indian acquirers have reduced their reliance on debt to facilitate such acquisitions. By mobilizing more resources through internal accruals, companies are more willing to borrow in the local currency of the target company when they need debt. Recently, Amtek Auto acquired Japan, adding yen debt. This will help you keep interest rates and finance costs in line with your goals. Guaranteed debt in most deals such as Motherson Sumi Peguform (now SMP) and Visiocorp (now SMR) has been successfully resolved. Acquisitions initially guaranteed by the parent company up to 2.7 Debt of $100 million (as of March 31, 2014) were funded.

However, Minda prefers to avoid debt. If she used the debt to take over a loss-making company, the debt could become a burden on her parents.

Better Integration, Especially in the First Year

In the first year, senior officials and several companies globalized acquisitions, saying it was important to maximize synergies between the acquirer and the acquired company. Sudhir Jain, Group Managing Director and Group CFO, Uno Minda “Integration of operations, technology and management will become difficult over time.”

Motherson Sumi executives said that in most acquisitions, the issues to be resolved are broken down into smaller issues (hotspots). For example, Motherson Sumi Visicorp or Peguform these hot spots are found in the middle. Motherson Sumi Mital “Understanding the problem has eliminated some of the hot spots.” Consultants are also typically involved in financial management, lean manufacturing support and addressing cultural issues.”

Finding a better strategic fit

The Company has become more patient and selective in ensuring that acquisition targets are strategically aligned with the parent company’s portfolio. We have acquired ancillary product lines such as wire harnesses, mirrors, plastics and modules in order to enhance business synergies, introduce new technologies, expand regional coverage and strengthen our position in niche markets. John Flintham, Managing Director of Amtek Auto “Our acquisitions had to be checked by a series of inter-group synergies.””

In-depth due diligence

Previously, most due diligence was limited to the financial sector. Now, companies have learned to dig deeper. “When we first acquired companies, we focused on financial due diligence. Over the past few years, we have conducted extensive due diligence on all aspects of our target companies, including finance, tax, operations, marketing and human resources.” .

Acquiring Companies Buy Customers for Customers

Motherson Sumi Indian acquirers often get information from their global customers about companies that could be acquisition targets. Buying these assets can generate good returns because key customers see value and continuity. In Germany, for example, customers, banks, suppliers and labor unions can be members of committees responsible for selling distressed assets. Sometimes, even clients without other members of the committee have the right to determine the best offer on a given subject, Flintham said.