Mumbai/Tokyo/Chicago: The emergence of Shahid Khan, the NFL team owner who made his fortune selling car bumpers, in the race to rescue embattled Japanese airbag manufacturer Takata Corp. pits the billionaire against more established parts suppliers and some of the world’s biggest buyout firms.
Pakistan-born Khan, 66, migrated as a teenager to the US, where he started washing dishes for $1.20 an hour. He later built Urbana, Illinois-based Flex-N-Gate Corp. into an auto-parts supplier that ranks him among the richest Americans, with an estimated net worth of about $5 billion. Along the way, he bought the Jacksonville Jaguars in Florida and the London-based Fulham Football Club, and landed on a cover of Forbes magazine in 2012 as the “Face of the American Dream."
Now, Khan’s bumper-and-headlight maker is one of five suitors for Tokyo-based Takata, which is looking for a buyer after some of its devices ruptured and killed at least 16 people, prompting repairs that could exceed 100 million devices worldwide, according to a person familiar with the matter.
Flex-N-Gate, which doesn’t make airbags, will go up against established suppliers such as Stockholm-based Autoliv Inc., Chinese-owned Key Safety Systems Inc. and Japan’s Daicel Corp. Private equity firms KKR & Co. and Bain Capital, partnering with Daicel, are also said to have submitted bids.
Automakers “may prefer an established company as a buyer compared with Flex-N-Gate," said Kavan Mukhtyar, a management consultant at PricewaterhouseCoopers in Mumbai who has advised on strategy and operations in the automotive industry. “But considering its global aspirations, Flex-N-Gate can offer better valuations. And in a deal, valuation plays a critical role."
Proposals from Takata buyers are being discussed at meetings scheduled in Japan this week between the supplier and automakers including Honda Motor Co. The central issue for the airbag maker’s customers is how those takeover bids divide up the responsibility for billions of dollars in recall costs and liabilities.
Representatives for Flex-N-Gate and Takata declined to comment on the bids. Flex-N-Gate declined to make Khan available for an interview.
A lack of a track record in making airbags may count against Flex-N-Gate in its bid for Takata, said Koji Endo, an analyst with SBI Securities Co. in Tokyo. Airbags are “an area where the margins are relatively high and the hurdles for new entrants are also high," Endo said.
Automakers have said ensuring a stable and reliable supply of airbags is one of their top priorities, even as they seek longer-term engineering solutions and to diversify their supplier base.
Khan may be able to make up for a lack of experience in airbags with the work ethic that’s propelled his career, according to Jim Womack, who’s authored several books on lean manufacturing and has spoken with the billionaire about his upbringing in Pakistan.
Khan recalled playing golf with his father where fairways were lined with beggars who’d throw back errantly hit balls in exchange for tips. Womack said Khan left for America to escape a country where one couldn’t lose.
“He can walk through a factory and have a real sense of what’s going on, unlike a thousand CEOs I’ve met who’ve never done what some of us would call real work," said Womack, the founder of and senior adviser to Lean Enterprise Institute Inc. “He’s a driven guy. Not an awful guy but he’s in this to win."
Khan, whose father sold surveying equipment and mother was a math professor in Pakistan, began working for Flex-N-Gate while still an engineering student, according to a profile posted on the Jacksonville Jaguars website.
Flex-N-Gate at the time used to make auto bumpers by welding together different pieces. Khan sought and succeeded in coming up with a seamless bumper that would be easier to manufacture, Khan said on stage in 2014 at Chicago Ideas Week.
He left the company to set up Bumper Works, which designed and manufactured lightweight seamless fenders, landing General Motors as its first customer, Khan said at the Chicago forum. Two years later Khan purchased his former employer when it came up for sale and folded Bumper Works into Flex-N-Gate.
Over the next decade, Khan led the transition of Flex-N-Gate from an after-market parts producer to an original equipment manufacturer. He expanded by acquiring businesses including mechanical assembly supplier Ventra Group Inc. in 2001, the bumper business from Meridian Automotive Systems in 2009 and a headlamps and taillights business from Ford Motor Co.
The company counts major automakers including Ford, Volkswagen AG, Toyota Motor Corp. and Suzuki Motor Corp. its customers and operates 54 manufacturing facilities globally.
For Khan, buying Takata will give him an estimated 22% global market share in airbags, a business that Autoliv forecasts may expand to $10.3 billion by 2018 from $9.5 billion in 2015, as emerging markets like India catch up with safety standards in developed countries.
Acquiring Takata also would allow Khan to diversify Flex-N-Gate’s business of supplying front-end modules and plastic parts and into higher-margin segments dominated by a few suppliers.
Despite its troubles, Takata has “technology, long-standing relationships with clients and plays in a field with very few competitors," said Deepesh Rathore, director at Emerging Markets Automotive Advisors in London. “For Flex-N-Gate, this is a good opportunity to diversify into a new component segment." Bloomberg