NASHVILLE --/b> Well established private equity players such as Cerberus Capital Management LP and Wilbur Ross know how to manage troubled auto suppliers, but many others dont, a top corporate turnaround expert said today.
William Diehl, CEO of business consultancy BBK, told the Automotive News Manufacturing Conference that private equity firms that focus on specific segments of the supply chain will succeed by capturing economies of scale. Those that follow the theory of bigger is better will fail, he said.
With the recent entry of private equity and hedge funds into the market, many of them dont understand the nuances of the automotive industry and get into trouble, Diehl said. We work with a number of private equity firms that understand the importance of managing businesses in this difficult sector. However, there are many that dont.
Citing BBK data, Diehl said 40 private equity firms have made at least three acquisitions each in the automotive industry.
Much of that has occurred in just the past 12 months. More than $57 billion in annual revenue has either been acquired or targeted for acquisition by private equity firms, according to Automotive News research.
And the figures dont include Cerberus pending acquisition of the Chrysler group from Daimler AG, which was announced earlier this week.
The automotive supply chain, particularly in North America, remains financially stressed and debt laden, according to BBK surveys. But BBKs data also shows the percentage of troubled suppliers has slightly improved over the past year.
BBK, in its annual survey of auto suppliers, said 22 percent of global suppliers would become significantly distressed financially within the next 12 months. Thats compared with 24 percent a year ago. In North America, BBK said 33 percent of the suppliers are at various levels of financial stress compared with 35 percent a year ago.
The survey of 80 suppliers of the top 150 global suppliers included four companies that are already in Chapter 11 bankruptcy protection, BBK said.
Among European suppliers, 14 percent were in distress. But among Asian suppliers, none were considered to be in distress.
It is absolutely critical for OEMs and Tier 1 suppliers to take a comprehensive proactive approach to carefully monitor both the operational and financial health of their suppliers, Diehl said in his prepared remarks. If these companies are not proactively monitoring the health of their suppliers, they risk suffering a significant and costly disruption to their supply chain.
BBK also released data showing that debt-to-equity levels among North American suppliers remain 10 times higher than their European and Asian counterparts. But the debt levels among the North Americans have improved by 31 percent from 2005.
Diehl said 11 North American suppliers received BBKs lowest financial rating, an F.
BBK is a global business advisory firm, but is known most in the auto industry for its various turnaround projects for suppliers.
You may e-mail Philip Nussel at [email protected]