PErspective in Manufacturing: Examining the Role of Private Equity in the Manufacturing Space
December 1, 2016
Private equity firms continue to exert influence on manufacturers’ global supply chains. There are a number of lucrative opportunities to create efficiencies and reduce operating costs along the entire supply chain, such as the impact of tax and duty on the bottom line.
Apollo Investment recently announced a partnership with Nike to build a regional apparel supply chain in the Americas for the sporting goods company, in contrast to the firm’s long-term strategy of overseas production. The new manufacturing and logistics company—in which Nike will not invest directly—aims to bring production closer to home, partly in response to growing demand for increased sustainability and domestic manufacturing. The vertically integrated manufacturing hub will enable Nike’s supply chain to be nimbler and will make it better suited to manufacture customized products, Forbes reports.
According to Supply and Demand Chain Executive, Apollo’s Special Situations I fund has so far acquired New Holland, a Pennsylvania-based apparel manufacturer, and ArtFX, a Virginia-based textile screen-printing and logistics company. Apollo plans to buy more apparel suppliers and textile firms in North and Central America, and build out new manufacturing plants, warehouses and logistics networks for Nike, Forbes reports. In the auto manufacturing sector, Bain Capital is partnering with Japanese airbag manufacturer Daicel Group, and Carlyle Group is teaming up with Ningbo Joyson Electronic Corp.-owned Key Safety Systems to bid for Takata, an airbag supplier up for auction after a massive safety recall. KKR is also said to be mulling a bid, according to the Financial Times. With 70 million Takata airbag inflators globally scheduled for replacement by 2019, some of the bidders are considering bankruptcy proceedings to mitigate liabilities, Bloomberg reports. Because some of the world’s largest automakers are expected to spend the next few years recalling airbag parts, Takata set up a committee in February to negotiate with its carmaker customers and other stakeholders.
Following its 2015 purchase of Chinese plastics injection manufacturer Ying Shing Enterprises, Platinum Equity will acquire Singapore-based industrial parts distributor Broadway Industrial Group’s foam plastics and flow control devices divisions for $111 million, according to Mergers & Acquisitions. Platinum specializes in turning divestitures into stand-alone businesses, and has extensive experience in the Asian markets, according to a press release. The Los Angeles-based PE firm plans to grow the Asian business both organically and through strategic add-on acquisitions, Mergers & Acquisitions reports.
In an unusually large Japanese deal, PE firms Bain Capital, KKR and MBK Partners are submitting second-round bids for Nissan’s 41 percent stake in auto parts maker Calsonic Kansei, according to Reuters. The second bidding round is expected to close in October, so the value of bids cannot be ascertained. However, the parts maker has a market value of $2.4 billion, and therefore represents a rare opportunity for a large deal. The drastic restructuring methods often associated with PE have traditionally been a turn-off for Japanese companies, but Nissan invited buyout firms to submit bids after corporate buyers failed to materialize, Reuters reports.
Supply chain optimization is one of several ways PE firms can create value and efficiencies in the manufacturing industry. Whether it is building a manufacturing backbone that helps reduce transportation costs and import duties, or building a platform by acquiring similar supplier and distributor companies within a given industry across the globe, there are significant opportunities for PE firms with an interest in the sector.
Sources: Bloomberg News, Financial Times, Forbes, Insead, Mergers & Acquisitions, Reuters, Supply & Demand Chain Executive, Supply Chain Digest, Tompkins International
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