Move comes just 10 months after the completion of its spin-off from Johnson Controls
Adient has signed a definitive agreement to acquire Futuris Group for approximately USD360 million, the US-based automotive seating and interior supplier announced last week. The company expects to complete the transaction, subject to various customary closing conditions, by the end of the current quarter (by 30 September).The US-headquartered Futuris Group, currently owned by affiliates of Clearlake Capital Group, is a major supplier of automotive seating and interior systems, operating 15 facilities in North America and Asia.
The company's product portfolio includes complete seating systems, seat frames, seat trims, headrests, armrests and seat bolsters. Futuris counts Ford, Tesla and General Motors (GM) as its major customers in North America. In Asia, the company supplies mainly to Chinese automakers including Geely, Chery and Brilliance Automotive.
This is Adient’s first acquisition since the company was formed as a spin-off of Johnson Controls last year. The acquisition is expected to significantly strengthen the US supplier’s position as global supplier of seating and interior systems. Bruce McDonald, Adient chairman and CEO, said, Futuris has a rapidly growing book of business that strengthens our position with West Coast customers, improves our utilization rates in North America and expands our business in Southeast Asia. In China, Futuris' concentration on local brands is complementary to our existing business.”
The move is part of a push by the company into China. In October of last year, as the company completed its spinoff from Johnson Controls, CEO Bruce McDonald said that he expects China to become the biggest seat market for the company by 2020. Adient has a total of 17 joint ventures with 60 manufacturing locations in 32 cities in China, supported by additional technical centers. Through its strong partnership with American and European carmakers such as Volkswagen and General Motors, Adient has further continued these relationships by partnering with them in China as well.
The acquisition is estimated to increase Adient’s annual revenue by around USD500 million. The acquisition is also expected to provide Adient with substantial synergies through vertical integration, purchasing and logistics management and by applying its 'Adient Manufacturing System' to optimize operational efficiencies.
IHS Markit expects that demand for seat assembly in China will reach 86.9 million units in 2019, while demand in the next largest region, Europe, is anticipated to reach 74.7 million units.
Focus on core strategy benefits focus on a single product area
Johnson Controls Inc's (JCI) decision to spin off Adient came as part of the Tyco merger, and is part of a greater industry trend of focusing on core strengths. One of the key reasons for splitting the seating and interiors business off from the rest of the company is the different cash and investment requirements of the automotive industry in general, compared with JCI’s other businesses. The separation of Adient was also the final part of its exit from automotive interiors. Having sold its headliner and sun visor business to Atlas Holdings, a private equity company in 2014, the company had sold its stake in its JV with Pricol of India to Pricol itself in May 2015.
Automakers' purchasing strategy for seats has changed over time; they prefer making bulk sourcing for seating parts. About five years ago, OEMs ordered approximately 70% of seats from one supplier. The remaining 30% was assembled from components purchased from a variety of vendors. The situation has now reversed as OEMs opt for standardised parts such as a common seat frame and seat cushion for all their vehicles. For instance, Mercedes-Benz and BMW use a common seat frame. This entire process results in considerable savings at the automakers’ end.
For suppliers, it is an incredibly time- and capital-consuming effort to keep seating products equipped with the latest technologies. This is why the focus is being diverted to becoming a specialist supplier. As a result, tier-1 suppliers have been making large-scale acquisitions of suppliers in the automotive industry in the last couple of years, with some deals being comprised of “unit-only” acquisitions of large tier-1s (e.g. Grupo Antolin’s USD535 million deal for Magna’s interiors businesses in 2015). The entire interior components will likely be supplied in one integrated system by an interior ‘megasupplier’. There are significant economies of scale by sourcing this way and big savings are being made for the seat system as a whole.
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