The consolidation of the North American automotive forging industry appears under way, with the acquisition earlier this month of Impact Forge Inc.
The buyout of Impact Forge is the second major forging company acquisition in 10 months for Hephaestus Holdings Inc., which now claims to be North America's largest independent forging company. Last September, Hephaestus acquired Jernberg Industries Inc.
"There will be other acquisitions," says Michael Psaros, managing principal at KPS Special Situations Funds, the New York private equity firm that controls Hephaestus. He says the forging group soon will have annual sales "north of $500 million."
Forging involves working metal into a finished shape by hammering or pressing. It is used to produce shapes either impossible or too costly to make by casting or other methods. Automakers use forgings for safety-critical suspension parts, engines and transmissions.
The forging industry suffers from excess capacity, too many players, too little capital and pricing pressure. Psaros says the purchase of Jernberg and Impact Forging will avoid many of those problems. They were acquired with minimal debt, and neither had legacy costs.
Hephaestus Holdings' CEO is George Thanopoulos, a former Metaldyne Corp. group president who spent 20 years with the company.
Warnings of a forging industry shakeout came in early 2004 when Metaldyne CEO Tim Leuliette told forging executives in Detroit: "That trembling you feel below your feet is called a shakeout."
Leuliette was critical of some executives in the $1.5 billion-a-year North American forging industry for trying to hang on by low-balling bids, signing contracts they couldn't service profitably and hoping for a drastic drop in steel prices.
A year later, Leuliette sold Metaldyne's North American forging operations to FormTech Industries LLC of suburban Detroit.
Metaldyne, also of suburban Detroit, generated forged part sales of $350 million in 2005. Its products include gears and shafts for transmissions and transfer cases.
One executive who did not share Leuliette's outlook during the 2004 industry meeting was Robert Stevens, CEO of Impact Forge, of Columbus, Ind. He advocated, in vain, that government impose limits on scrap-steel exports and help reduce steel supplier surcharges to parts makers.
Now, Stevens says he had no choice but to sell the company he founded in his basement 20 years ago, although he will remain CEO.
"To grow involves taking on substantial debt," he says, "and that is not an ideal situation for the owners of the company."
You may e-mail Robert Sherefkin at [email protected]