A strategy that fueled massive consolidation of the U.S. automotive supply base in the 1990s has come unhinged. After some heady success in the early years, the "roll-ups" have pretty much rolled into turmoil.
Dura Automotive Systems Inc., an early example of the so-called roll-up merger, announced a $100 million restructuring Feb. 9 that could close five to 10 of its 60 factories. A day later, another roll-up company, J.L. French Automotive Castings Inc., sought Chapter 11 reorganization. A year earlier, a former Dura sister company -- Tower Automotive Inc. -- had sought court protection.
All three companies underscored the grow-at-all-costs roll-up strategy used by financiers in the 1990s to win more Big 3 outsourcing business. Typically, the strategy involved investors who made serial acquisitions of parts suppliers to offer one-stop-shopping for automaker customers.
Dura, French and Tower, which make a variety of metal parts, all have ownership or management links to former Minneapolis investment firm Hidden Creek Industries Inc. They also share the tarnished legacy of a supply-sector strategy that has largely been abandoned.
"The time of the roll-up may be passing," says turnaround specialist John Groustra, a partner with Conway MacKenzie & Dunleavy PC, of Birmingham, Mich. But he says it's not clear what strategy will supplant it for the next round of consolidation.