Acquisitions provide technology, customers

Japanese suppliers' plan: Grab and grow

Acquisitions provide technology, customers

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Prodded by a stagnant home market and fast-moving rivals, Japanese suppliers are buying up foreign companies to gain quick access to new technology, customers and markets.

At least three major Japanese suppliers -- Denso Corp., Toyoda Gosei Co. and Tokai Rubber Industries -- have made acquisitions in recent months.

It's a brave new world for some Japanese suppliers, which traditionally have favored in-house product development. Acquisitions previously were viewed as attempts to buy market share, often with short-term benefits.

In early June, Denso snapped up Ease Simulation Inc., a telematics startup near Pittsburgh that provides remote vehicle diagnostics for commercial fleet owners.

That deal follows Denso's acquisition in September of a 50 percent stake in Adasens Automotive GmbH, a German developer of image-recognition technology that allows onboard cameras to identify road obstacles.

Denso, No. 2 on Automotive News' list of the Top 100 global suppliers, appears to be taking the trend a step further by channeling Silicon Valley's do-it-now ethos.

On May 29, the company announced plans to beef up its think tank in Silicon Valley to "aggressively pursue investments" in startups and entrepreneurs.

Denso said its Silicon Valley operation will focus on cybersecurity, big data and autonomous driving -- all major growth industries as automakers race to improve their collision avoidance technology.

The Japanese megasupplier is trying to keep pace with foreign rivals such as Robert Bosch GmbH, Continental AG and Delphi Automotive, each of which has opened an office in Silicon Valley. (See story, Page 30.)

Japanese suppliers have long favored in-house growth. But homegrown expertise takes time in fields such as vehicle diagnostics, collision avoidance and infotainment. Acquisitions and licensing are popular tactics for companies that need to improve their technology quickly, said Egil Juliussen, an analyst for the consulting firm IHS Automotive.

Automakers and suppliers "must become more proficient to manage software and update it," Juliussen said during a May 29 phone interview. "There will be new skills required."

Ease, a 14-employee startup near Pittsburgh, has a cloud-based database that covers 90 percent of vehicles on the road. The Ease acquisition could enable Denso to enter the realm of remote vehicle diagnostics for commercial fleet owners and dealerships.

"We're talking to a number of different companies," said Richard Shiozaki, a Denso senior vice president. "We are not only here to sell products but to offer services, and telematics fits right in with our growth plan."

While dealer diagnostics looks like a profitable niche, collision avoidance could be a huge revenue generator for Denso and other megasuppliers.

Denso, like its German rivals, has developed a broad array of technology -- such as radar, lidar, vision sensors, lane-keeping assist, and adaptive cruise control -- that are needed for collision avoidance.

The company also is developing a vehicle-to-vehicle communication system to help prevent collisions at intersections.

Good times
All but 1 of the Automotive News top 10 global suppliers grew in 2013.
    
  Total global 2013 oem parts sales (in millions)Change from 2012
   
1Robert Bosch GmbH*$40,183 e9%
2Denso Corp.$35,849 fe5%
3Magna International Inc.$34,37513%
4Continental AG$33,500 fe2%
5Aisin Seiki Co.$27,125 fe-10%
6Hyundai Mobis$24,677 f16%
7Faurecia$23,9506%
8Johnson Controls Inc.$23,440 f4%
9ZF Friedrichshafen AG$20,434 f8%
10Lear Corp.$16,23411%
    
*2013 global automotive parts sales do not include proportionate activities for joint venture companies. e = estimate f = fiscal year
Source: Automotive News Data Center

Bargain hunting


While Denso pursues high-tech acquisitions, Toyoda Gosei went bargain hunting in the workaday world of weatherstripping.

On May 20, the company said that it had acquired the assets of the German rubber supplier Meteor, which had declared insolvency two years earlier.

Toyoda Gosei, No. 29 on Automotive News' list of top global suppliers, will use the Meteor acquisition to expand its business with customers such as Daimler AG, BMW AG and Audi.

Hiroki Fukui, vice president of North American purchasing and administration, said Toyoda Gosei has a sense of urgency to expand its portfolio of customers.

"We have a very good position with Japanese automakers, but our business with European automakers is very small," Fukui said. "We have to expand our business with them radically and drastically."

Tripling sales


As their home market stagnates, Japanese automakers are setting up assembly plants overseas. Their suppliers are following them into new markets -- and seeking new customers, too.

Consider Tokai Rubber Industries, a supplier of rubber anti-vibration parts and hoses that ranks 77th on Automotive News' list of the top 100 global suppliers.

In 2011, the company announced plans to triple global sales over the next decade. Since then, Tokai Rubber has expanded to 74 sites in 24 countries, up from 43 sites in 11 countries.

In its 2013 annual report, Tokai Rubber said it would expand in Europe and South America "by vigorously conducting mergers and acquisitions in order to strengthen its global supply chain."

Early last year, Tokai Rubber bought Italian hose maker Dytech-Dynamic Fluid Technologies S.p.A. Then it acquired Germany's Anvis Group GmbH and Produflex Minas Industria de Borrachas of Brazil.

Japanese suppliers aren't abandoning their home market or their traditional customers. But the pace of technological innovation has given them a sense of urgency. "We keep finding more and more unique applications" for telematics technology, said Denso's Shiozaki. "There is huge growth potential."

You can reach David Sedgwick at dsedgwick@crain.com.


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