Backed by Anchorage Capital Group, Martinrea International Inc. has completed the acquisition of Honsel AG, a German-based supplier of aluminum components for the automotive and industrial sectors. The merged company will be known as Martinrea Honsel Group. Martinrea owns 55% of the Martinrea Honsel Group, with Anchorage owning the remaining 45%.
Martinrea International Inc. (TSX:MRE), a leader in the production of high quality metal parts, assemblies and modules and fluid systems focused primarily on the automotive sector, today announced that it has closed the previously announced purchase of the assets of Honsel AG, a German-based leading supplier of aluminum components for the automotive and industrial sectors, to form the Martinrea Honsel Group. Martinrea partnered with Anchorage Capital Group, L.L.C. (“Anchorage”) in the transaction.
Martinrea owns 55% of the Martinrea Honsel Group, with Anchorage owning the remaining 45%. Anchorage is a registered investment adviser with offices in New York and London. The firm manages private investment funds across the credit, special situations and illiquid investment markets of North America and Europe, with particular focus on defaulted and leveraged issuers. This transaction represents the fifth restructuring Anchorage has conducted in Germany since 2009.
Honsel develops and manufactures complex aluminum and magnesium products using state-of-the-art production technologies including high pressure die-casting, permanent mold and sand casting as well as extruding and rolling. Honsel produces four major product lines: engine products such as engine blocks, cylinder heads and oil pans; transmission products, such as housings and control parts; suspension products, such as engine cradles; and body parts, such as front boards and extrusion profiles.
Initially, the purchase transaction envisaged the purchase of all of Honsel’s operations, which included plants in Germany located in Meschede, Nuremberg, Soest and Nuttlar, as well as Madrid, Spain; Queretaro, Mexico and Monte Mor, Brazil. The Nuremberg facility, primarily specializing in transmission parts, has been acquired by ZF Friedrichshafen AG (“ZF”), the primary customer of the facility; Martinrea Honsel comprises the remaining facilities, including the head office in Meschede. The plants that comprise the Martinrea Honsel Group, net of the Nuremburg operations, generated revenues of approximately €500 million ($680 million) during the past twelve months, and employed approximately 3,200 people. The Nuremberg operations generated revenues of approximately €120 million ($163million) during the past twelve months, and employed approximately 800 people.
After factoring in the Nuremberg transaction, where ZF acquired the Nuremberg facility along with related liabilities, the purchase price for the acquisition of the plants that comprise Martinrea Honsel was approximately €95 million ($129 million). The purchase price includes cash consideration of approximately €61 million ($83 million), with the balance in assumed liabilities as currently estimated. Revenues for the Martinrea Honsel Group for the next twelve months are anticipated to exceed €500 million ($680million), with anticipated normalized annual EBITDA of €30 million ($41million) or more. Martinrea anticipates that the acquisition will be accretive to earnings commencing the first full quarter of included revenues and earnings.
In addition to the cash paid for the asset purchase, Martinrea and Anchorage have invested an additional €49 million ($66 million) as equity into Martinrea Honsel. The funds will be used to finance working capital and the anticipated capital expenditures of the group. After the acquisition transactions were completed, Martinrea Honsel has approximately €65 million ($88 million) in working capital, including approximately €49 million ($66 million) in cash. It is anticipated that Martinrea Honsel will fund capital expenditures, both replacement and new capital, for the next twelve months, from working capital and cash flow from operations. It is further anticipated that Martinrea Honsel will fund growth capital for its opportunities through available credit facilities and support, if required and prudent, from its investors.
Nick Orlando, Martinrea’s Chief Executive Officer, stated: “We are happy to announce the formation of Martinrea Honsel, a leading aluminum parts supplier to the automotive industry, which we intend to grow and prosper. It broadens the product offerings and geographic presence of Martinrea, but also has what we believe is significant growth potential in all major automotive markets. We live in an industry highly focused on taking weight out of the vehicle, long a specialty of Martinrea, which helps to reduce fuel consumption and exhaust emissions, and Martinrea Honsel is very well positioned to meet the needs of our customers. We welcome the people from Martinrea Honsel to the Martinrea family, and we look forward to working with you. We are very impressed with the talent of the people we have met, so far —there is a tremendous skill set and there is a reason Honsel was a market leader for so many years. We will work with you to the best of our abilities to provide you with the opportunity to grow with us over time.”
Rob Wildeboer, Martinrea’s Executive Chairman, stated: “This is a very significant transaction for us. The final result of our negotiations is an accretive transaction of some great assets and excellent people, for a very reasonable price. We maintain a very strong balance sheet at Martinrea, but our conservative philosophy is also reflected in the financial strength of Martinrea Honsel going in. It is well capitalized with little debt. We and our partners at Anchorage have provided financial stability to this business, which will allow Martinrea Honsel to focus on improving operations and growth, rather than managing a high debt load and the distractions of an insolvency process. In the course of the transaction, we did enter into an arrangement with ZF, a major automotive parts supplier in transmissions, so ZF could acquire the Nuremberg operations. This is a mutually beneficial transaction. ZF is the major customer of Nuremberg, and from our perspective the plant was not core to Martinrea Honsel’s future. We know that the ZF acquisition will be beneficial for both ZF and the Nuremberg plant and we wish them well. Now we can focus our efforts on other plants.”
Tony Davis, President of Anchorage, said: “We are pleased to partner with Martinrea and believe Martinrea Honsel, with a near debt-free balance sheet and our investment in the company, can return to its place of prominence as a world leader in its field.”
The common shares of Martinrea trade on The Toronto Stock Exchange under the symbol “MRE”.
The Company reports its financial results in accordance with IFRS. However, the Company has included certain non-GAAP financial measures and ratios in this press release that the Company believes will provide useful information in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to the other financial measures determined in accordance with IFRS. Non-GAAP measures referred to in the analysis include “annual normalized EBITDA”.
Special Note Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of applicable Canadian securities laws including those relating to future revenues and earnings of Martinrea Honsel, the anticipated accretive nature of the transaction to the earnings of Martinrea, the funding of capital expenditures and growth capital for Martinrea Honsel, future growth opportunities, increasing long term value, improving operations as well as other forward-looking statements. The words “continue”, “expect”, “anticipate”, “estimate”, “may”, “will”, “should”, “views”, “intend”, “believe”, “plan” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on estimates and assumptions made by Martinrea in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that Martinrea believes are appropriate in the circumstances. Many factors could cause Martinrea’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the factors discussed in detail in Martinrea’s Annual Information Form for the financial year ended December 31, 2010 and other public filings which can be found at www.sedar.com. These factors should be considered carefully, and readers should not place undue reliance on Martinrea’s forward-looking statements. Martinrea has no intention and undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.