Producing Gold In The Rust Belt - Heartland Industrial Partners merges three acquisitions to form Metaldyne - Brief Article

Automotive Manufacturing & Production, March, 2001 by Christopher A. Sawyer

In August 2000, private equity firm Heartland Industrial Partners swooped down and snatched MascoTech, a supplier of engine and drivetrain components and specialty fasteners. One month later, Simpson Industries, an automotive and heavy truck component supplier, was grabbed by Heartland. And Global Metal Technologies, Inc., a supplier of aluminum die cast automotive components, joined the family on January 16, 2001. Exactly one week later, the trio was combined and launched as Metal-dyne, and company officials say their purchase of metal Forming companies will continue. Europe is a likely target For Future acquisitions.

Interim president and CEO For this new company is industry veteran Tim Leuliette, a founding partner and senior manager at Heartland Industrial Partners. He explained the new combination this way: "There are lots of retirements happening at the OEMs, which will continue to deplete their experience base. We can fill that gap. In addition, we plan to capture more of the value stream by not only providing the Forged connecting rods, for example, but also machining those rods and delivering completed components and modules to the assembly plant."

According to Leuliette, For every dollar of metal underneath a vehicle, there is a further $1.50 to $4.00 in machining and finishing work necessary before it is ready For assembly. By combining MascoTech, Simpson, and GMTI, Metaldyne will be able to capture a greater portion of this income stream.

A NEAR-TOTAL PACKAGE

According to Roy Parrot, group president, business operations, "[Metaldyne] is the first attempt to create a single supply source focused at powertrain, drivetrain and chassis applications Formerly held by the OEMs. We can design, develop and modularize our products in a way that fits into customer demands, and manage the hard assets the OEMs don't want to."

So while Metaldyne can't build a complete transmission, it can provide the shafts and gears, machine them, and cast the case and valve body. "So we can go from providing a number of $1.00 pieces to giving the customer a $300 assembly that has added value," says Parrot. Will this search for synergies amongst the companies (and any others that might join the group] wind up in Metaldyne taking over a portion of the design process as well?

"Its too early to tell," says Parrot. "Plus, this is something the OEM might not be totally comfortable with. However, we will work to become a growing part of this process, and--as we move forward--we can see the OEMs encouraging us to do more."

LOOKING FOR MR./MS. RIGHT

Next on the agenda, is the naming of a non-interim CEO. Leuliette says he has plenty of candidates, and some very specific specifications this person must meet. "We are looking for someone with an understanding of metal forming," he says, "who has a Wall Street following and can lead the company into the public arena. The last thing we want to have to do is introduce a new face and a new company to the analysts at the same time. The attraction for this person [coming to Metaldyne] is the chance to build value while realizing dot.com financial returns." This person also will oversee Metaldyne's consolidation of its supplier base, establishment of common reporting structures, and the creation of a system that has a single point of contact for each project.

UP, NOT DOWN

An initial public offering will be floated in the future to "clear up the balance sheet" as Leuliette puts it, before a second offering takes the company public--and out of Heartland's control--in approximately eight years. This long term strategy and growth model proved to be very attractive to pension funds and other investors, allowing Heartland to raise $1.0 billion in four months. The expectation is that Metaldyne will have revenues between $5.0 billion and $7.0 billion in about five years through targeted acquisitions and internal growth. "We are in a growth mode despite the slowdown in the automotive sector," says Leuliette. "Now is the time For us to grab share and create value. And unlike others in the industry, we have the funds to pursue this strategy."