Motherson Sumi Systems Ltd (MSSL), which is engaged in manufacturing wiring harnesses used by the automobile industry, announced on Wednesday that it would acquire an 80% stake in Germany-based Peguform Group from Cross Industries AG, which will hold the remaining 20%.
The acquisition will be made through a joint venture in which MSSL will hold a 51% stake and Samvardhana Motherson Finance Ltd the rest.
Peguform enjoys a strong presence in Europe and is a full-service supplier of differentiated products for the automotive and related industries. According to an MSSL release, Peguform’s revenue in the calendar year 2010 (CY10) stood at €1,370 million (around Rs 8,660 crore today) and earnings before interest, tax, depreciation and amortization (Ebitda) at €66.87 million. That translates into an Ebitda margin of about 5%.
While the company has refused to divulge the details of the deal price, analysts from Emkay Global Financial Services Ltd said in a note to clients, “We expect the valuation to be around 3.5 times enterprise value (EV) to Ebitda (based on CY10 financials). This implies EV of about €235 million (0.18 times CY10 EV to sales).”
MSSL intends to finance the 51% stake through debt and given that its consolidated debt-to-equity ratio stands at about 0.8 times at the end of fiscal 2011 (FY11), the balance sheet should not be stretched. The company is expected to disclose the valuation of the deal sometime in October.
What does this development mean for MSSL? For one, it gives the company access to new technology. Analysts are viewing this as a step in the right direction for MSSL to achieve its long-term vision. It intends to boost sales to Rs 22,250 crore by 2015 from around Rs 8,400 crore in the last fiscal.
While the acquisition appears positive from the long-term perspective, analysts are concerned about the impact of Peguform’s lower Ebitda margins compared with MSSL’s consolidated margins of about 10.6% from the short-term point of view. But revenues should get a good boost, as Peguform’s CY10 revenue is nearly equal to MSSL’s consolidated revenue for FY11.