Blackstone will own 62 per cent of the merged company. Kapur will own the rest and will be the chairman. A formal announcement is due by this month end. The professional management of the two firms will stay.
The merger will also pave the exit for JM Financial, which owns 32 per cent in the Sona Group company, which has been valued at Rs 2,100 crore ($300 million). Last year, Blackstone acquired Comstar — a maker of starter motors, starter motor kits and alternators for automotive applications — for Rs 1,000 crore. The Chennai-based company was founded in 1999 as a local subsidiary of Visteon Corp, a unit of Ford Motor Co.
Blackstone and Kapur declined to comment.
Comstar has an installed capacity of close to 4 million starter motors and a little over 1 million alternators in India besides 800,000 starter motors in North America. Its clients include Ford, Volvo, Tata Motors, Ashok Leyland-Nissan, Renault Nissan, Geely, Jaguar, Aston Martin and Mazda, according to its website.
Sona BLW Precision Forging is a leading manufacturer of precisionforged parts with plants in Pune and Gurugram with around 85 per cent market share. It also has three plants in Germany and one in Hungary. With over 100 R&D engineers and 12 active patents, it caters to clients such as Audi, Daimler, Maruti Suzuki, Scania, Ford, Tata Motors, Mahindra and Mahindra and Tafe among others.
The combined company will have $60 million of Ebitda (earnings before interest, taxes, depreciation, and amortisation) from the outset.
“The merger will help create scale, product, client and geographical diversification,” said one of the persons cited above. “It will be servicing clients in the US, Europe, India and China. It is extremely difficult to organically scale up in this space since there are a number of smaller players. Adopting the Motherson Sumi strategy (of inorganic growth) is the fastest way.”
Blackstone grew auto component company TRW Automotives Holding and successfully took it public in 2004 following a $4.7 billion buyout in 2003. In India, it made an almost fourfold return on its investment in tractor-maker International Tractors by selling its 17.75 per cent stake to Japan’s Yanmar for Rs 1,700 crore.
“There is a need and opportunity for consolidation as the industry grows, suppliers need to invest in more automation and R&D and they will need more scale and access to resources,” said Rakesh Batra, partner and national leader, automotive sector, EY. “Thus, M&A can provide the structural platform to enable this.”
In 1995, the Sona Group and Mitsubishi Materials signed a 75:25 JV agreement to set up a manufacturing unit in India, Sona Okegawa Precision Forgings, to produce warm forged bevel gears and synchronizer rings. In the early 2000s, Sona Group embarked on a plan to be the largest producer of automotive bevel gears in the country. In 2008, it acquired the forging division of Thyssenkrupp, which had bought BLW, the inventor of warm forge technology. Sona Okegawa Precision Forging became the largest manufacturer of forged gears.