TRW's acquisition is the kind that makes sense in an auto industry suffering from high raw-material costs and low North American volume, says one investment banker.
In the past, supplier acquisitions were huge grabs for revenue and market share.
For example, TRW paid $6.6 billion for parts supplier LucasVarity PLC in 1999.
But that's not the kind of deal that fits anymore, says Dave Eberly, senior managing director at Beringea Inc., a private-equity and investment-banking firm in Farmington Hills, Mich.
"It's a more healthy approach to M&A activity in the auto space," Eberly says. "Big deals for the sake of just raw size and scope aren't going to get done as much. In a sector with as much of a hangover as auto has right now, transactions have to make sense."
Wall Street analysts say TRW's move does just that. Its business with PSA/Peugeot-Citroen SA increases from 1 percent of sales to 5.2 percent, and its business with Renault-Nissan jumps from 8.4 percent of sales to 9.4 percent, according to a Sept. 7 report by Merrill Lynch analyst John Murphy.
The move also gives TRW much-needed production capacity in Europe.
"Had we not made this acquisition, we would have had to add capacity somewhere in Europe for the business we booked," says Manley Ford, TRW spokesman. "We'll be using some of that (Dalphi) capacity for that booked business."