DETROIT -- Ann Arbor-based Affinia Group Holdings Inc. paved the way for its upcoming IPO through strong management and prudent cost-cutting, according to an investment banker who helped the auto parts company with a $300 million divestiture in February.
The company announced last week that it plans to raise up to $230 million in an IPO. In a filing with the U.S. Securities and Exchange Commission, the maker of aftermarket auto parts said it had engaged J.P. Morgan Securities, Barclays Capital, Bank of America Merrill Lynch and Baird to help underwrite the offering.
“Affinia's management has been taking action over the last two years to get its profitability in line with revenue,” said Cliff Roesler, who worked on the divestiture of Quinton Hazell on behalf of Affinia when he was at the Detroit-based investment bank of W.Y. Campbell & Co.
Roesler subsequently co-founded Birmingham-based Angle Advisors-Investment Banking LLC.
“It was a very active effort by management to clean up the business, to be focused on profits and not revenue,” said Roesler. “They worked diligently to orient the business so it would generate the profits you'd expect from a company of that size.”
Quinton Hazell generated about $250 million of Affinia's $2.1 billion in revenue in 2008, but was a money loser, said Roesler. The division, which distributes parts in seven European countries, was sold to UK-based Klarius Group Ltd. for about $300 million.
Affinia had revenue last year of about $1.8 billion. It was formed in 2004 when Cypress Group LLC, a New York-based private equity firm, bought the auto replacement parts division from Dana Corp.
The company makes such replacement parts as brakes, oil filters and shock absorbers.
Roesler said the company — and the IPO timing — has been helped by the poor economy. As people hold on to their cars longer, they need to spend more on maintenance and replacement parts.
“The company was in the right place at the right time,” he said. “While the new car market has rebounded to some extent, it's still at 12 million units instead of 16 and a half. People are still holding onto their cars longer.”
Roesler called the prospective IPO “a smart move. I think there will be a lot of interest given that they did well in a down market. They proved themselves.”
Brian Demkowicz, managing partner at Detroit-based Huron Capital Partners LLC, a private equity firm that bought OE Quality Friction Inc., an Ontario aftermarket maker of brakes and brake components, last year, said the demand for aftermarket should stay strong even as the economy recovers.
“This year looks to be a strong growth year, too. While the economy is getting better, there are still a lot of people out of work,” he said.
The slow pace of this improving economy is good for companies like his and for Affinia, he said. While people are still holding on to their cars longer, they're starting to drive more and to take vacations, and more miles means more replacement brake parts and pads.
Affinia plans to trade on the New York Stock Exchange under the symbol AFN. The company, which is in a quiet period mandated by the SEC and prohibited from discussing the IPO, has not disclosed its timing.
Affinia is expected to use part of the proceeds of the IPO to expand its footprint. Last year, about 60 percent of sales came from the U.S., but the company is building a 220,000-square-foot plant in Shandong, China, and expects to sharply grow sales in Brazil, Eastern Europe, India and China.