WL Ross & Co. has moved into auto parts, completing its first investment in the sector through the purchase of a 25 percent stake in the equity of the Paris-based Oxford Automotive Aps, a manufacturer of stamping, assembled modules and mechanisms.
WL Ross gained its stake from former creditors of Oxford through the exchange of notes for equity when the auto-parts maker emerged from insolvency proceedings in April of this year. The firm has since partnered up with other investors and committed to serve as the standby underwriter to a rights offering of $100 million of new equity.
For the Oxford investment, WL Ross will use its $1.1 billion WLR Recovery Fund III LP, which the New York-based turnaround shop finished raising in August.
WL Ross founder and namesake Wilbur Ross has been trained to see the good in almost anything, demonstrated by the firm’s investments in steel and textiles. Regarding this most recent investment, Ross was drawn to Oxford’s market-leading position in Europe, which he believes will serve as a solid platform to embark on a consolidation play. In an interview, he said: “We’ve been articulating a desire to get involved in auto parts, and [Oxford] is a leader in Europe in all of its segments. It’s not a huge company, but it’s a start, and we intend to use it as a base on which to add additional, related businesses.”
Ross said the company has been able to build a solid OEM customer base in Europe, including Peugeot, Renault and DaimlerChrysler, and he expects to see growth from gaining penetration into the US OEM market. Oxford, which generates revenues of $625 million a year, currently operates plants in France, Germany and Turkey. Under Ross, Oxford would also look to further access the Asian market, where Ross said it currently has limited exposure.
The auto parts space has been decimated in recent months, with more than 15 bankruptcies littering the US market since the start of the year. Higher commodity and energy prices are only partly to blame, as the struggles of the OEMs coupled with pricing pressure from international markets have combined to torpedo many in the industry.
“We believe the sector really just needs to consolidate,” Ross said. “There are a large number of auto-parts companies selling to a relatively small number of auto makers. There’s always going to be someone making the same product and doing it for 25 cents cheaper.”
Moreover, Ross noted that auto-parts makers need to diversify their geography to adapt to the carmakers, who are now making cars all over the globe. He stressed that auto-parts companies have to be careful to not over-leverage their balance sheets, lest they wind up in the same scenario as Collins & Aikman, the former Heartland Industrial Partners portfolio company that filed bankruptcy protection this past May.
Joining Ross on Oxford’s board of directors are company CEO Herve Guillaume, Contrarian Capital Management managing member Jon Bauer, former Ford-Germany CEO Rolf Zimmermann, Venture Group chairman Eugene Davis and Sarkis Kalyandjian, the former CEO of GKN’s automotive driveline division.
In addition to WL Ross, KPS Special Situations recently made its first move in the auto-parts space. The firm acquired Jernberg Inc. out of bankruptcy for around $60 million last month, and later renamed the company Hephaestus Holdings Inc.