hwmb powertrain and clean transportation overview
DESCRIPTION
Provides background information on clean technology in the automotive industry with a focus on transaction activityTRANSCRIPT
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GLOBAL POWERTRAIN AND CLEAN TRANSPORTATION
OVERVIEW2012
2
DISCLOSURES AND DISCLAIMERS
THE HEADWATERS MB POWERTRAIN AND CLEAN TRANSPORTATION OVERVIEW 2012 IS NOT AN ANALYST REPORT OR PROSPECTUS ANDIS NOT INTENDED TO PROVIDE BUY-SELL RECOMMENDATIONS REGARDING ANY SECURITY OR COMPANY DISCUSSED WITHIN. WHILEEVERY REASONABLE EFFORT HAS BEEN MADE TO UTILIZE VERIFIABLY FACTUAL INFORMATION, NO INVESTMENT DECISION SHOULD BEUNDERTAKEN BASED UPON THE INFORMATION PRESENTED OR DISCUSSION CONTAINED WITHIN. IN THE EVENT OF CLEAR FACTUALINNACURACY, PLEASE CONTACT HEADWATERS FOR PROMPT REVIEW.
THIS DOCUMENT IS EDITORIAL IN NATURE AND CONTAINS FORWARD LOOKING INFORMATION REGARDING THE STATE OF MARKETS ANDFINANCIAL PERFORMANCE OF COMPANIES THAT MAY NOT ACCURATEY REPRESENT CURRENT OR FUTURE PERFORMANCE.
THE ANALYSIS AND DISCUSSION PRESENTED IN THIS DOCUMENT IS THE OPINION OF HEADWATERS MB ALONE. NO THIRD PARTY,WHETHER CITED OR NOT, SHALL BE RESPONSIBLE FOR THE STATEMENTS MADE OR USE OF INFORMATION WITHIN. REASONABLEEFFORT HAS BEEN MADE TO ATTRIBUTE CREDIT TO THE SOURCES AND OWNERS OF THE INFORMATION CONTAINED IN THIS DOCUMENT.IF AN OMMISSON HAS BEEN MADE, PLEASE CONTACT HEADWATERS FOR PROMPT REVIEW.
THIS DOCUMENT WILL BE USED TO MARKET HEADWATERS ADVISORY SERVICES TO COMPANIES CITED IN THIS DOCUMENT.
HEADWATERS MB SHALL BEAR NO RESPONSIBILITY FOR THE UNAUTHORIZED OR INNAPROPRIATE USE AND DISTRIBUTION OF THISDOCUMENT. IF YOU HAVE RECEIVED THIS DOCUMENT IN ERROR OR WITHOUT KNOWLEDGE OF ITS PURPOSE, SCOPE AND INTENDEDAUDIENCE, PLEASE CONTACT HEADWATERS MB IMMEDIATELY.
3
TABLE OF CONTENTS
1. Powertrain Practice ………………………. 4
2. Industry Overview ………………………. 9
3. HEV/EV Technology …………………........ 26
4. Batteries ………………............ 33
5. Natural Gas Vehicles ………………………. 42
6. China ………………………. 47
7. India ………………………. 52
8. Brazil ………………………. 58
9. About Headwaters ………………………. 64
4
POWERTRAIN PRACTICE
5
POW
ERTR
AIN
PR
ACT
ICE
WHO WE ARE
Anant VashiManaging [email protected]
FOCUS:Powertrain TechnologyClean TransportationAutomotive Supply Chain
Anant joined Headwaters after several years in investment banking sourcing capital for early and growth stage companies.
Prior to investment banking, Anant worked with Sun Mountain Capital, a $90 million New Mexico-based co-investment fund focused on emerging technologies and economic development within the state. Prior to that, Anant worked as a Senior Associate for Mesa Capital Partners, a private equity fund which invests in growth opportunities in the service, manufacturing and technology areas.
Anant began his private equity career with MWV Pinnacle, a $23 million fund mandated to invest in minority owned or managed companies. He also spent five years as a proprietary equity trader for Electronic Trading Group, LLC. Anant earned an MBA from the Weatherhead School of Business at Case Western Reserve University, an MA in Economics from the New School University in 1999 and BA in Liberal Arts from St. John’s College in Santa Fe, NM
Peter [email protected]
FOCUS:Industrial TechnologyAsian Cross Border Transactions
Peter Nam, Director, joined Headwaters from Kerlin Capital, where he served as a Vice President providing strategic advisory and merger and acquisition services to middle market companies across a broad range of industries.
Prior to that, he served as a Vice President at vFinance Investments specializing in mergers, acquisitions, and private placements of debt and equity for emerging growth technology companies.
Peter began his investment banking career with Credit Suisse First Boston in their Global Technology Group focusing on mergers and acquisitions. Subsequent to CSFB, he also worked in the investment banking group at Robertson Stephens. Peter graduated with a BA in Economics from the University of California, Berkeley.
John IppolitoManaging [email protected]
FOCUS:Industrial TechnologyProcess Automation TechnologySensors and Instrumentation
John Ippolito, Managing Director, joined Headwaters in 2010 from Axia Advisors, a middle market investment banking firm he co-founded in 2004 that focused on industrial technology markets.
He has over fifteen years experience advising private and public companies on M&A and capital formation, both domestic and internationally. Prior to Axia Advisors, he was head of M&A at H.C. Wainwright, a full service investment banking firm that served technology, healthcare and industrial growth companies.
Before H.C. Wainwright, he was Managing Director at C.W. Downer & Company, where he helped establish a cross-border sell-side practice. Before becoming an investment banker, he held senior management positions with several companies serving the factory automation marketplace. Mr. Ippolito earned a B.S. Industrial Engineering degree with Highest Distinction from Purdue University, and an MBA from Harvard Business School.
6
POW
ERTR
AIN
PR
ACT
ICE
WHERE WE FOCUS
Batteries
Digital controls
Electric motors
Fuel injection
Sensors
Vehicle intelligenceRegeneration/Flywheel
Super/Turbo charging
Cylinder control
Lightweighting
Emissions
TIER 1 suppliers should have exposure to multiple clean powertrain technologies. This means M&A beyond the core, and it might mean buying at pre-commercial stages.
Well capitalized TECHNOLOGY PROVIDERS seeking revenue should look to acquireestablished Tier 2 suppliers with comparable legacy products to jumpstart OEM activity
International OEM’s and suppliersare starting to look at the US market for technology acquisition. Technology providers should target exit now as new powertrain platforms are still developing .
TIER 2 suppliers should look actively at mergers to broaden capabilities, diversify customer base and strengthen financial positions, including foreign targets.
7
POW
ERTR
AIN
PR
ACT
ICE
WHAT WE SEE
POWERTRAINSYSTEMS
INTEGRATORS
BRIC ENGINEERING
FIRMS
SPECIALIZED ENGINEERING
FIRMSVALIDATED POWERTRAIN
STARTUPS
LARGE MULTI-INDUSTRY TECHNOLOGY INTEGRATORS
TIER 1 MANUFACTURERS
AUTO OEMS
BATTERY MANUFACTURES
EV COMPONENT MANFUFACTURERS
MARKET PROVEN EV MANUFACTURERS
CNG SERVICES COMPANIES
CNG EQUIPMENT MANUFACTURERS
VEHICLE CHARGING INFRASTRUCTURE
Indicates possible strategic transactions
Darker color represents current strength in the value chain
8
POW
ERTR
AIN
PR
ACT
ICE
WHAT WE DO
Mergers and Acquisitions• Stock/Asset sales• Divestitures• Buy-side engagements
Recapitalizations• Debt restructuring• Stressed/Distressed situations• Management buyouts
Capital Acquisition• Private Equity/Venture Capital• PIPES• Senior/Mezzanine Debt• Project finance
Cross Border Transactions• Joint Ventures• Licensing
Investment Banking
Private Equity
HCP invests exclusively in Headwaters client companies and has the flexibility to play anywhere on the balance sheet. With HCP’s limited partners, we’ve built a major capacity to handle everything from complex distressed transactions to growth equity investments in strong, emerging or transitional companies. We’re comfortable with virtually every form of debt and equity, and we have restructuring experts onboard who can help you work through what might have to happen at your company as together we process the difficulties of the last few years.
Family Office Capital
Family Office Direct Investment Services (FODIS) is designed to provide business-owning families or Family Offices with access to Headwaters’ integrated business model, national network and market intelligence to enhance their deal-origination process, optimize investments and exits, and strengthen oversight and monitoring of their private-company investments.
As part of FODIS, we can oversee, manage and report on behalf of Family Offices, and we can also serve as a syndicate agent when multiple Family Offices combine to provide equity capital to a segment-leading business.
9
INDUSTRY OVERVIEW
10
IND
UST
RY
OVE
RVI
EWTHEMES
• It’s all about the “Mash-up”. OEM’s that can combine and synchronize best of breed technologies will stay ahead in MPG performance and remain flexible against platform obsolescence.
• OEM’s will begin to explore open source engineering, pushing development beyond the castle walls.
• Customers will assume higher MPG’s as the norm, leaving non-participating manufacturers at a disadvantage, even in high performance categories
• Powertrain suppliers will broaden geographic reach, acquiring smaller suppliers as well as new technologies.
• Global M&A will focus on technology acquisition and supply chain efficiency.
• BRIC M&A will continue to consolidate small parts suppliers, localizing supply chain and importing technology
• HEV and diesel will be near term winners; EV will pick up beyond 2015 as next generation batteries enter commercial production and battery costs decrease
11
IND
UST
RY
OVE
RVI
EW2015 PROJECTIONS
• Global auto sales CAGR will exceed 3%; US unit sales to decline below 12MM
• Chinese auto companies enter western markets with multiple models
• Hybrids to gain market share, nearing 7% penetration due to Plug-in introduction and lower battery costs
• Electric vehicles enter the market in force, but “range anxiety” keeps unit sales below 100,000 in 2015
• EV batteries average 150 miles per cycle, and at half cost
• Conventional IC fuel economy average to exceed 30 mpg through new engine design, efficient fuel management and vehicle weight reduction
• Proprietary component makers drive M&A as powertrain platforms diversify and consolidate geographically
• Natural gas approaches 2% penetration in US commercial truck sales
• Independent EV companies consolidate to survive; major OEM’s dominate EV
• Major OEM’s actively acquire venture stage technologies
12
IND
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RY
OVE
RVI
EWTOP 25 AUTOS STRENGTHEN FINANCIALLY
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2006 2007 2008 2009 2010
Average Revenue ($MM)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2006 2007 2008 2009 2010
Average EBITDA ($MM)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2006 2007 2008 2009 2010
Average Market Cap ($MM)
0
2,000
4,000
6,000
8,000
2006 2007 2008 2009 2010
Average Working Cap ($MM)
Source: Cap IQ
13
IND
UST
RY
OVE
RVI
EWUS DEMAND WILL MODERATE
8,000
9,000
10,000
11,000
12,000
13,000
14,000
15,000
2015
Sources: Research and Innovative Technology Administration; Motor Intelligence
Annual US Light Vehicle Sales (thousands of units)
Headwaters Projections*
* Assumes 2012‐2013 US GDP contraction of 0‐1%
14
IND
UST
RY
OVE
RVI
EWBUT CHINA WILL DRIVE GLOBAL SALES
Source: Scotiabank Group, Global Auto Report, 6/21/2011
New Passenger Vehicles Sales (millions of units)
0
2
4
6
8
10
12
14
16
2008 2009 2010 2011(p)
US
Western Europe
China
India
Brazil
15
IND
UST
RY
OVE
RVI
EWTHE US CUSTOMER SEEKS VALUE
Source: US Department of Energy, via Ward’s Automotive Group
% of US Annual Family Income Spent on a New Vehicle vs. Average Gasoline PPG (2005 $)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
20%
25%
30%
35%
40%
45%
50%
55%
60%
Fuel PriceCar spend
16
IND
UST
RY
OVE
RVI
EWENGINE SIZE DROPS
Source: Environmental Protection Agency
US Light Vehicles Market Share by # of Cylinders
0%
10%
20%
30%
40%
50%
60%
70%
8 Cylinder
6 Cylinder
4 Cylinder
17
IND
UST
RY
OVE
RVI
EWENGINE PERFORMANCE REFOCUSED ON MPG
Source: Environmental Protection Agency; US DOE
Average US Light Vehicle Horse Power per Cubic Inch Displacement vs. Average MPG
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
18
IND
UST
RY
OVE
RVI
EWPROPELLED BY TECHNOLOGY
Notes:
1 – Averaged mpg benefit over equivalent gasoline models (i.e. Camry vs. Camry hybrid); EPA data
2 – 2011 production model
3 – Average based upon Chevy Volt and Plug-In Prius evaluations
4 – Based upon official Nissan Leaf combined mpg rating
5 – Based upon Volvo V60 DHEV evaluations
6 – Estimate based on near market CODA, Tesla and BYD models
Estimated % MPG Improvement over 25 mpg Gasoline Equivalent
0%
100%
200%
300%
400%
500%
600%
1
Averaged Hybrid (1)
Averaged Clean Diesel (1)
Toyota Prius (2)
Plug‐In Hybrid (3)
All Electric (4)
Plug‐In Diesel Hybrid (5)
Next Gen Electric (6)
19
IND
UST
RY
OVE
RVI
EWOEM PLAYERS
-Plug-in HEV-Clean Diesel-EV-HEV
CHEVY VOLT
-Plug-in HEV-EV-HEV
PRIUS
-Plug-in HEV-EV-HEV-Clean Diesel
CMAX
-Plug-in HEV-EV-HEV-Clean Diesel
E 300 BlueTEC
-Clean Diesel-HEV-Plug-in HEV
RANGE_e
-HEV-EV-Plug-in HEV
INSIGHT
-HEV-Plug-in HEV
SONATA
-Clean diesel-Plug-in HEV
JETTA TDI
-Efficient Gas-Clean Diesel
MAZDA3 SKYACTIV
-Clean Diesel-HEV-EV
i3
-HEV-Clean Diesel-EV
VOLVO V60
-HEV-EV
MiEV
-Clean Diesel-Efficient Gas
FIAT 500
-EV-HEV-Plug-in HEV
e6
-EV-HEV
LEAF
-Efficient Gas-HEV (2013)
IMPREZA
-Plug-in HEV
KARMA
-EV
MODEL S
-EV
CODA
-EV-Clean Diesel
REVA
-HEV-EV-Plug-in HEV
FLUENCE
-Efficient Gas-HEV
CAYENNE
-Clean Diesel-HEV-EV-Plug-in HEV
C-ZERO/iON
-EV-HEV
BENNI MINI
20
IND
UST
RY
OVE
RVI
EWPARTNERING NEW TECHNOLOGIES
“Intel Inside” or “Sorry, not invented here”?
21
IND
UST
RY
OVE
RVI
EWDRIVING TRANSACTIONS
2011 KPMG survey cites technology as the most likely reason for M&A
22
IND
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RY
OVE
RVI
EWWHY TECHNOLOGY M&A?
Innovation will trump brand
• Balance sheet strength has returned to OEM’s• Global long term industry growth certainty• Most OEM’s and Tier 1 players are geographically diversified to benefit from overall growth• Product innovation occurring more rapidly and accelerating• Very decentralized technology landscape across multiple powertrain platforms (IC, Diesel, HEV, EV,
PHEV), no one has a lock• Proprietary technology crucial for differentiation• Low cost Chinese manufacturers catching up in design and reliability – looking to western export
markets• Chinese and Indian OEM’s looking actively at western technology acquisition for mpg improvement , cost
reduction and competitive advantage• Innovation driving customer acceptance – TESLA, FISKER, CODA, BYD
OEM and Tier 1 manufacturers will need to actively acquire technologies across powertrain platforms to differentiate, maintain relevance and avoid
being shut out of the next performance benchmark
23
IND
UST
RY
OVE
RVI
EWINDUSTRY METRICS
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2007 2008 2009 2010 Jul‐11
Revenue Multiple
Current Ratio
Source: Capital IQ
Powertrain Valuation and Liquidity (Average, 65 companies)
24
IND
UST
RY
OVE
RVI
EWTRANSACTIONS
Implied EBITDA Multiple: 12.09
Implied Revenue Multiple: 1.16
Source: Capital IQ
$215 $127
$1,208
$116 $114
$1,416
Transaction Value Target EBITDA Target Revenue
Mergers andAcquisitions
PrivatePlacement
Powertrain Middle-Market Transactions 2007-2011 (Average values, $MM)
25
IND
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OVE
RVI
EWTRANSACTION FOCUS
Source: Center for Automotive Research
GKN acquires Getrag’s Driveline Products Business
Transaction Summary:On July 27, 2011, GKN announced its agreement to acquire the all-wheel drive (AWD) components businesses of Getrag KG, a privately held German company. Getrag Driveline Products engages in the supply of geared driveline products, and is currently targeting the future supply of transmission and axle products for hybrid and electric vehicle drivetrains. As part of the transaction, GKN will be acquiring an exclusive license to Getrag’s electric drivetrain technology for use in electric and certain hybrid vehicles, primarily for Europe and the Americas.
Transaction Deal Values: The acquisition cost will be £295mm (US$481mm). Getrag Driveline Products has an approximate enterprise value of £280mm (US$456mm). For the last audited year ended 31 December 2010, GetragDriveline Products achieved consolidated sales of approximately £380mm (US$618mm), EBITDA of £50mm (US$81mm), profit before taxation of £25mm (US$41mm) and gross assets were £250mm (US$408mm).
Strategy: Global production of AWD vehicles is forecasted to grow at above-market rates, reflecting the overall increase in demand for crossover vehicles and compact SUVs. The acquisition of Getrag Driveline Products will also allow GKN to take advantage of the increasing demand for electric and hybrid vehicles as those markets develop.
26
HEV/EV TECHNOLOGY
27
HEV
/EV
TECH
NO
LOG
Y
• Plug-in Diesel / Gas technology will set near term fuel efficiency at 70+mpg while maintaining performance
• Increased consolidation of hybrid powertrain component providers will increase output capacity and reduce pricing
• Abundant battery supply will further reduce HEV pricing
• Most active M&A area – vertical integration of EV’s “battery – motors – controls”
• May see a M&A land grab by auto OEMS’s for the most promising battery technology
• EV’s will not eclipse HEV gross sales for decades, but will compete for the commuter segment
• “Outside the home” charging infrastructure will be a long term bottleneck – How do you make money in charging?
• HEV technology will dominate western car markets by 2025 with majority new light vehicle sales
THEMES
28
HEV
/EV
TECH
NO
LOG
YHYBRID SALES
US HEV Penetration Rate(light vehicles, units)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2015Headwaters Projections
Source: US Department of Energy, Alternative Fuels and Advanced Vehicle Center
29
HEV
/EV
TECH
NO
LOG
YEV SALES
27,000
77,000
116,000
136,000 140,000
15,000
25,000
45,000
70,000
95,000
‐
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2011 2012 2013 2014 2015
CAR Estimate
Headwaters Estimate
US Electric Vehicle Sales Projections (units)
Source: Center for Automotive Research
30
HEV
/EV
TECH
NO
LOG
YMARKET EXPECTING FAST EV GROWTH
Revenue (LTM) Multiple
Source: Capital IQ
19.5918.25
25.13
20.919.8
18.95
1.2 1.08 1.12 1.13 1.06 0.97
0.00x
5.00x
10.00x
15.00x
20.00x
25.00x
30.00x
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Aug‐11
TESLA
FORD
31
HEV
/EV
TECH
NO
LOG
YBUT WHO WILL REAP THE REWARDS?
2012 FORD FOCUS ELECTRIC
Range: ~100 miles
Charge Time; ~4 hrs. @ 220v
Post Rebate Cost Estimate: ~$25,000
2012 TESLA S
Range: ~160 miles
Charge Time; ~8 hrs.@ 220v
Post Rebate Cost Estimate: ~$50,000
32
HEV
/EV
TECH
NO
LOG
YTRANSACTIONS
31
24
60
40
Battery / Components Powertrain / Transmission Complete vehicledevelopment
Total average
Source: Capital IQ
Private Placements 2005-2011 (Average investment round size, $MM)
33
BATTERIES
34
BA
TTER
IES
THEMES
• Lithium ion battery manufacturing capacity overbuilt for demand in the near term
• Several early advanced battery manufactures entrants will fail
• Diversified providers will consolidate technology platforms
• China will become the dominant auto battery manufacturing hub through scale and cost advantage
• Technologies will advance rapidly and auto makers will shift providers quickly
• Customer concentration will be a big issue for most manufacturers
• Strong early stage M&A likely as technology is consolidated by battery leaders
• Optimal battery chemistry and performance will be reached within five years and the industry will stabilize as EV demand picks up
35
BA
TTER
IES
STATIONARY BATTERY METRICS
Valuation and Liquidity (Averages, 16 companies)
0.00
0.50
1.00
1.50
2.00
2.50
2007 2008 2009 2010 Jul‐11
Revenue Multiple
Current Ratio
Source: Capital IQ
36
BA
TTER
IES
LITHIUM CHEMISTRY METRICS
0.00x
5.00x
10.00x
15.00x
20.00x
25.00x
30.00x
35.00x
40.00x
Valence Technology
Advanced BatteryTechnologies
A123 Systems
Ener1
Revenue Multiple (LTM)
Source: Capital IQ
37
BA
TTER
IES
LITHIUM CHEMISTRY METRICS
Revenues (LTM by quarter)
0.00
20.00mm
40.00mm
60.00mm
80.00mm
100.00mm
120.00mm
A123 Systems
Ener1
Advanced BatteryTechnologies
Valence Technology
Source: Capital IQ
38
BA
TTER
IES
LITHIUM CHEMISTRY METRICS
Cash and equivalents ($, LTM average)
0.00
50.00mm
100.00mm
150.00mm
200.00mm
250.00mm
300.00mm
350.00mm
400.00mm
450.00mm
500.00mm
A123 Systems
Ener1
Advanced BatteryTechnologies
Valence Technology
Source: Capital IQ
39
BA
TTER
IES
VERTICAL INTEGRATION STORIES
Founded in 2003 and backed by Elon Musk and high profile venture funds, TESLA pioneered the modern EV by taking an integrated approach to battery and vehicle development based upon the 18650 Li-Ion cell. Strong vehicle design, deep pockets and excellent public relations kept the start-up in a positive light through several years of battery development until the Roadster debut in 2008. Range capabilities, durability and road testing validated the battery approach, leading to interest in its battery system. TESLA has reported deals with TOYOTA, DAIMLER and FREIGHTLINER to utilize battery and powertrain systems for a variety of vehicle applications ranging from mini cars to fleet vans. What’s next? TESLA’s public valuation puts it in a strong position to acquire other battery platforms and technologies to diversify and strengthen its position.
Like TESLA, CODA AUTOMOTIVE has integrated battery and vehicle development from day one, although for CODA, the battery is king.The company has developed a 120 mile range flat Lithium Iron Phosphate battery that will be initially manufactured by LIO EnergySystems, a joint venture with Lishen Power Battery. Heavily reliant on supplier partners to remain capital efficient, CODA will sell automobiles in California by the end of 2011. The more interesting strategic initiative is its recently announced partnership with Chinese auto manufacturer Great Wall Motors. Great Wall will reportedly use the CODA battery system and other components for a range ofvehicles for export globally. Just a technology supplier, or could CODA become the US nameplate for this fast growing Chinese auto maker?
Think before you leap… Lithium battery pioneer ENER1 jumped into the vertical integration game by investing heavily in previously bankrupt THINK GLOBAL, the Norwegian EV manufacturer. Production delays, poor sales and accounting issues plagued THINK, which again declared bankruptcy in June 2011. ENER1, which touts customers like Chinese Tier 1 auto supplier Wanxiang Group and car manufacturer Volvo, has endured mounting losses from operations, capital investments and acquisitions. The company is currently restating financials and is under threat from NASDAQ delisting.
In a heated duel with competitor Ener1, lithium Ion battery maker A123 SYSTEMS won the right to supply the battery system for the Fisker Karma high performance plug-in hybrid. Whether a quid pro quo was involved is uncertain, but A123 also participated in a Fisker investment round in the amount of $23 million. Not withstanding the equity position in Fisker, A123 is the prime battery supplier for several GM programs and Chinese auto company Shanghai Auto, indicating that product quality and production capacity drove the Fisker decision.
40
BA
TTER
IES
NANOTECHNOLOGY WILL DELIVER
Energy density may triple; Power density may increase 10x; Costs cut in half
Metals:“Aluminum-Celmet increases the amount of positive active material per unit area. Sumitomo Electric indicates that in the case of automotive onboard battery packs, such replacement will increase battery capacity 1.5 to 3 times. Alternatively, withno change in capacity, battery volume can be reduced by one-third to two-thirds.”
“Envia has developed a cathode material based on inexpensive metals (including manganese) that stores more energy per unit of weight than anything else in use today – twice the energy density of lithium cobalt oxide. Because of the material’s stability at higher voltages, it is able to access high capacities with long cycle life. The combination of high capacity and low cost metals helps to significantly lower the price per kilowatt-hour (kWh) of energy storage. By putting more energy in each battery, the number of batteries required decreases – by 50% in Envia’s case, dramatically reducing the overall cost of the application..”
Silicon: “Nexeon has patented a unique way of structuring silicon so that it delivers extended cycle life and significantly increases battery capacity. In contrast to carbon, Nexeon’s silicon anode materials have a much higher capacity for lithium and as a result are capable of almost ten times the gravimetre capacity per gram (mAh/g).”
Material neutral:“Xerion Advanced Battery is exploring a novel method of using nanotechnology to increase ion transport and energy extraction to produce a new electrode architecture called StructurePore. This architecture is an electrode structure on the sub-micron scale that consists of an open-celled, porous metallic lattice conformably coated with the active electrode material. The StructurePore architecture has been demonstrated with prototype batteries using both Li-ion and NiMH chemistries. “
Source: company websites
41
BA
TTER
IES
TRANSACTIONS
Implied EBITDA Multiple: 10.06
Implied Revenue Multiple: 1.18
Source: Capital IQ
Select Middle-Market Transactions 2007-2011 (Average values, $MM)
$18 $15
$130
$42
$5
$233
Transaction Value Target EBITDA Target Revenue
Mergers andAcquisitions
Private Placement
42
NATURAL GAS VEHICLES
43
NA
TUR
AL
GA
S VE
HIC
LES
THEMES
• CNG (compressed natural gas) growing rapidly in India as third major fuel type for vehicles with a 5 year 26% CAGR and is mandated for New Delhi’s public transit buses
• Pakistan, Iran, Argentina and Brazil are the largest users of CNG for vehicles, although Brazil’s growth has stalled in favor of ethanol based fuels
• NG is a preferred alternative fuel for heavy trucks because of the economic cost benefit vshybrid technology or electric technology
• Major fleet operators including United Parcel Service have deployed hundreds of CNG vehicles for local routes in the US market
• LNG (liquefied natural gas) is a potential substitute for diesel given 60% energy density ratio and lower price. However, given infrastructure requirements, cost-benefit can be challenging.
44
NA
TUR
AL
GA
S VE
HIC
LES
TRENDS
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
ASIA‐PACIFIC
EUROPE
NORTH AMERICA
LATIN AMERICA
AFRICA
Source: International Association for Natural Gas Vehicles
Total NGV Sold (# of cumulative units)
45
NA
TUR
AL
GA
S VE
HIC
LES
TRANSACTION FOCUS
FAB Industries and Enviromech Industries merge to form Agility Fuel Systems.
Summary: On January 6, 2011, FAB Industries and Enviromech Industries merged to form Agility Fuel Systems, Inc. Both US companies are leading providers of alternative fuel systems for the transportation industry. Together, Agility manufactures and markets fuel systems, including compressed industrial gas systems, for heavy duty trucks, buses, and specialty vehicles.
Transaction:Cleantech PE firm Element Partners provided ~$22 million to facilitate the transaction and provide growth capital for the combined entity. On a combined basis, Agility is thought to have approximately $50 million in annual sales. Valuation for the transaction was not disclosed.
Strategy:Fleet customers looking for scale implementations require advanced system engineering capabilities, installation expertise, service support, equipment supply, fueling infrastructure, contingency planning and geographic coverage. By combining, the two entities could solidify their US market leadership position through scale and capability.
End Game:Given Element’s participation, Agility potentially sets up well for a strategic acquisition by a larger CNG player looking tovertically integrate:Westport (heavy duty engines)Fuel Systems Solutions (machinery, autos, stationary)Clean Energy Fuels (NG fuel supplier)
Source: Capital IQ
46
NA
TUR
AL
GA
S VE
HIC
LES
TRANSACTIONS
Implied EBITDA Multiple: 11.06
Implied Revenue Multiple: 2.38
Source: Capital IQ
Select Middle-Market Transactions 2007-2011 (Average values, $MM)
$99
$4
$43
Transaction Value Target EBITDA Target Revenue
47
CHINA
48
CHIN
ATHEMES
Source: Detnews.com: Ford ‘close’ to upping stake in China venture: Aug 10
Government Policy: 2009 Auto Industry Revitalization Plan- Encourage manufacturer and supplier consolidation- Focus on unit output and demand- Acquisition of world-class technologies- Subsidize “green” technology- Establish brand equity for domestic producers
Accelerating M&A- There have been 262 M&A transactions between 2007-2011 in the Chinese
automotive industry compared to 84 transactions from 2002-2006 - Nearly 185 of the 264 M&A transactions from 2007-2011 were auto part and
equipment companies, signaling very active supply chain consolidation- Outbound cross-border deals to expand – Geeley acquires Volvo
Chinese Consumers Prefer Foreign Nameplates- Quality, design and brand recognition more important than price for many- Brand sales, June 2011:
Tier 2,3 Penetration- Ford, in its Changan joint venture is putting a much greater emphasis on Tier 2 and
3 cities such as Chengdu, Sichuan, Suzhou and Jiansu, to capture the growth and lack of automotive depth in these central growing locations
- Some tier 2 and 3 sized cities with over a million people don’t yet have Ford dealerships
102616
5458
182
2002-2006 2007-2011
Chinese Automotive Transactions
Other
AutoManufacturers
Auto Parts &Equipment
Source: Capital IQ
Europe 22%US 20%Japan 18%China 40%
49
CHIN
AON HYBRID TECHNOLOGY
Source: Deloitte; Driving for Success: A review of outbound Automotive M&A from China; August 2010
Chinese Execs pessimistic in near term; some OEM’s see opportunity
0%
10%
20%
30%
40%
50%
60%
70%
80%
Global China
Will Hybrid purchasing accelerate over the next 24 months?
Yes
No
Honda will likely start producing electric-gasoline hybrid cars in China in "two to three years" if its sales push succeeds, said Seiji Kuraishi, chief of Honda's China operations. Honda plans to launch five hybrid models next year: the Insight, the CR-Z, a hybrid version of the Fit, a significantly redesigned hybrid version of the Civic and a hybrid model for Honda's upper-scale brand Acura. All are small cars.
The Japanese auto maker is determined to make hybrid technology popular in China, Mr. Kuraishi said. Current green-car technology efforts in China are largely focused on electric cars rather than hybrids, which use both electricity and gasoline
The push comes as auto makers brace for stringent new Chinese fuel-economy standards expected to be phased in over the coming years. Beijing has yet to detail the requirements. But Mr. Kuraishi said the company expects they will give its hybrids—and its Honda and Acura brand names—more appeal. "It's a big opportunity for us," Mr. Kuraishi said, citing the boost Honda and other Japanese auto makers received from tougher new fuel-efficiency standards in the U.S. in decades past.
Source: WSJ Online; Honda Plans Push for Hybrids in China; 9/15/11
50
CHIN
A
BYD Company is expected to deliver an electric car to the US market in Q2 of 2012. The e6, is an all-electric sedan originally projected to leapfrog other electric vehicles in the market with its combination of range, pricing, and style.
BYD took advantage of the available subsidies and resources provided by the Chinese government to develop battery and EV drivetrain technology. The e6, is expected to get 140-200 miles per charge with a 120v charge time under 6 hours. The car is priced very reasonably at roughly $35,000 after incentives, which should generate sales given its purported capabilities.
To support the company’s ambitious growth plans, BYD raised ~$230 million from Warren Buffet’s MidAmerican Energy Holdings Co., a Berkshire Hathaway company.
Along the way however, BYD has seen sales growth in China deteriorate, and significant loss of profitability in 2011. With competition heating up in the global EV market, the once apparent advantage for BYD as a price competitive exporter are in question. Also, reports have emerged that the e6 may not be as range capable as originally touted, and that the quality and finishes of the vehicle may not resonate with US consumers.
Brand awareness and distribution are also open questions. BYD is currently talking to potential US automotive dealers hoping to secure 20 in the first year. The Company expects to ship its first vehicles to the US in mid-2012, almost 2 years behind schedule.
All eyes will be on e6 sales, both as a barometer of EV demand, and more importantly whether Chinese manufacturers will be able to establish a beach head in the brand focused US market.
COMPANY FOCUS
51
CHIN
ATRANSACTIONS
Source: Capital IQ
AnnouncedDate Target Type
Transaction Value ($USDmm) Buyers Sellers Business Description
07/18/2011 Suzhou Tysan Precision Engineering Co., Ltd.
M&A 24.04 Cheung Who Tech Ltd., Auto Element Company, Ltd.
Tysan Corporation Pte., Ltd.
Suzhou Tysan Precision Engineering Co., Ltd., manufactures and markets seat recliners and other auto components.
06/02/2011 China Avic Avionics Equipment Co., Ltd.
Private Placement 394.47 AviChina Industry & Technology Co. Ltd.; Aviation Industry Corporation of China
N/A China Avic Avionics Equipment Co., Ltd. engages in the research and manufacture of small displacement cars.
06/01/2011 Ningbo Huaxiang Electronic Co.
Buyback 30.91 N/A N/A Ningbo Huaxiang Electronic Co., Ltd. engages in the design, development, production, and sale of auto parts.
05/27/2011 Zhejiang Century Huatong Automotive Part Co., Ltd.
Public Offering 160.55 N/A N/A Zhejiang Century Huatong Automotive Part Co., Ltd manufactures and supplies auto parts.
05/26/2011 Chaowei Power Holdings Ltd.
Buyback N/A N/A N/A Chaowei Power Holdings Limited principally engages in the production of motive battery products for electrically powered vehicles in China.
05/05/2011 BYD Company Ltd. Public Offering 219.91 N/A N/A BYD Company Limited engages in the research, development, manufacture, and sale of rechargeable batteries and auto related products.
04/15/2011 Shenyang Brilliance Jinbei Automobile Co., Ltd.
M&A 45.90 Shenyang XinJinBei Investment and Development Co., Ltd.
Dalian Huaxia Northern Investment Company Ltd.
Shenyang Brilliance Jinbei Automobile Co., Ltd. manufactures automobiles in China.
03/28/2011 Dongfeng Yulon Motor Co., Ltd.
Private Placement 182.76 Yulon Motor Co. Ltd. N/A Luxgen Motor Co. Ltd. manufactures and markets passenger cars that include sport-utility vehicles and multi-purpose vehicles.
11/10/2010 Chongqing Changan Automobile Co., Ltd.
Private Placement 532.03 China Changan Automobile Group Company Limited
N/A Chongqing Changan Automobile Company Ltd., together with its subsidiaries, develops, manufactures, and sells automobiles, engines, and related components.
08/21/2010 Zhejiang Wanfeng Auto Wheel Co., Ltd
Private Placement 122.23 Wanfeng Auto Holding Group Co., Ltd.
N/A Zhejiang Wanfeng Auto Wheel Co., Ltd. engages in the manufacture and supply of aluminum alloy wheels for automobiles.
52
INDIA
53
IND
IATHEMES
Consumer demand shifting emphasis from price to innovation and design
Rising demand can be attributed to an increase in discretionary income, availability of car loans, lower interest rates and promotional prices
- With only 9% households owning vehicles, the new capital availability will accelerate market growth- First time buyers are upgrading to premium compact cars, the fastest growing segment, increasing from 11% to
22% of the overall market share
Imports are challenging the Maruti, Nyundaia and Tata, which own 73% of the market
- Fiat Palio Stile Entry compact- Toyota ETIOS Entry sedan- Toyota Liva Premium compact- Honda Brio Premium compact- Volkswagen Vento Premium sedan- Nissan Teana Premium sedan
Mergers and acquisitions are dominated by small supplier consolidation and supply chain integration. That will continue through the next five years and beyond.
The Indian consumer is value driven, so brand premium is far less important than “bang for the buck”.
Electric infrastructure cannot support EV’s, even on a small scale. Hybrids are too costly. Efficient IC engines will dominate the market, with premium paid for luxury rather than power or mpg.
54
IND
IATHE PLAYERS
Source: Deutsche Bank: Maruti Suzuki Ltd. (July, 2011)
Company Market Cap($MM)
Revenue ($MM)
EBITDA($MM)
EBITDAMULTIPLE
Tata Motors 13,076.0 27,921.4 4,099.1 5.94x
Mahindra 9,544.3 8,395.8 1,372.9 9.6x
Bajaj Auto 9,342.1 3,842.5 1,040.1 8.9x
Hero Honda 8,233.1 4,675.3 594.5 13.8x
MarutiSuzuki
7,717.0 8,347.3 797.8 8.9x
Bajaj Auto 9,342.1 3,842.5 1,040.1 8.9x
Ashok Leyland
1,565.6 2,554.5 279.6 7.5x
TVS Motors 547.3 1,045.6 48.9 14.6x
Domestic Manufacturers
45.0%
35.6%
14.0%
14.1%
14.0%
12.9%
7.0%
8.5%
3.0%
7.0%
2.0%
4.4%
15.0% 17.5%
Unit Volume Revenue
Market Share
Maruti Hyundai Tata Motors Mahindra
Toyota Honda Others
Ford plans to open two India-based manufacturing plants by 2014, an investment of $1bn
- The first manufacturing plant will have production capacity of 240,000 units annually
- The engine plant will be able to produce 270,000 engines annually
55
IND
IATRENDS
Deutsche Bank: Maruti Suzuki Ltd. (July, 2011)
54.8%49.2% 44.8% 45.4%
10.6% 15.6% 21.0% 21.5%
10.9% 14.2% 13.6% 13.6%
23.8% 21.0% 20.7% 19.5%
FY08 FY09 FY10 FY11E
Entry compact Premium Compact Entry Sedan Premium Sedan & above
Vehicle Segment Market Share
56
IND
IA
Mahindra Acquires Control of REVA Electric
Transaction Summary:
Mahindra & Mahindra (M&M) acquired a 55.2% stake in REVA Electric Vehicle Co. on May 26, 2010 by a combination of equity purchase from equity sponsors as well as a $10mm cash infusion.
M&M’s acquisition of REVA was strategically implemented to take advantage of REVA’s innovation and R&D in the EV market. M&M plans on using its large distribution network to increase economies of scale to narrow the gap in pricing between REVA’s EV cars verses petrol based cars.
REVA’s NXR model is currently priced at $15,000 for the lead acid battery, and $21,000 for the lithium battery. Through leasing of batteries consumers can save over $1,000 off the price of the vehicle. Indian state governments are working to further reduce the pricing through subsidizing the EV market as a green initiative. The Delhi government in particular is promoting EV vehicles through its tax rebates of up to 29.5% off the cost (15% subsidy on the base price of the REVA, a 12.5% VAT exemption, and road tax and registration exemption).
REVA has been able to increase its vehicles range per charge through the development of the NXR, (100 miles per charge) doubling the range per charge of the G-Wiz, REVA’s first car produced. Realizing the rapid innovation and newfound affordability of pricing, REVA is positioning itself for a much larger demand by building a manufacturing facility with the capacity of producing 30,000 cars annually, nearly ten times the number of REVA vehicles currently on the road.
Mahindra is targeting near term domestic sales of 2,500 units, and a considerable expansion of its REVA exports into the European market.
CASE STUDY
Source: FINPRO Electric Vehicle India: (2011)
57
IND
IATRANSACTIONS
Source: Capital IQ
AnnouncedDate Target Type
Transaction Value ($USDmm) Buyers Sellers Business Description [Target]
03/15/2011 Rasandik Auto Components Pvt Ltd.
M&A 1.98 N/A RasandikEngineering Industries India Ltd.
Rasandik Auto Components manufactures and supplies automotive components.
03/17/2011 Hindustan Composites Ltd., JalnaUnit
M&A 1.29 Spitmaan Group Hindustan Composites Ltd.
Hindustan Composites engages in the development, manufacture, and marketing of asbestos industrial products and friction materials
12/16/2010 Hero Honda Motors Ltd. (BSE:500182)
M&A 843.52 Hero Investments Private Limited
Honda Motor Co., Ltd.
Hero Honda Motors Limited manufactures and sells motorcycles in India.
10/29/2010 Steel Strips Wheels Ltd. Private Placement
9.77 Sumitomo Metal Industries Ltd.
N/A Steel Strips Wheels Limited engages in the manufacture and marketing of steel wheels for passenger cars, multi utility vehicles, tractors, trucks, and two and three wheelers.
06/28/2010 Synergies Castings Limited M&A 2.5 Superior Industries International, Inc.
N/A Synergies Castings Limited engages in the manufacture of alloy wheels and other precision aluminium castings.
06/26/2010 Lumax Auto Technologies Ltd. Private Placement
5.13 Sheela Finance Private Limited; Orange Mauritius Investments Ltd.
N/A Lumax Auto Technologies Limited manufactures and sells auto components primarily in India.
06/05/2010 Amtek Auto Ltd. Private Placement
22.85 N/A N/A Amtek Auto Limited engages in the manufacture, assembly, and sale of auto components.
05/26/2010 Mahindra REVA Electric Vehicle Co Ltd.
M&A N/A Mahindra & Mahindra Ltd.
Draper Fisher Jurvetson; Global Environment Fund
Mahindra REVA Electric Vehicle Co Ltd. manufactures and sells electric vehicles.
01/25/2010 Exedy India Limited M&A 4.3 Exedy Corp. N/A Exedy India Ltd. manufactures and sells various auto clutch products and components in India.
58
BRAZIL
59
BR
AZI
LTHEMES
• Competition has become intense in the Brazilian market as most international OEMs have developed a presence.
• Consumer discretionary income remains the key driver for market growth and producers are looking for ways to hit lower price points while maintaining margins.
• Auto financing has expanded since 2000, constituting 35% of outstanding consumer credit. Average car loan interest rates range between 30-40%, due to higher default rates.
• Tax burden, which can amount to up to 30% of the value of the vehicle provides additional resistance in the market, which has grown 4-8% annually over the last two decades.
• The Brazilian supplier base is transitioning from commodity to engineered products, although labor costs tend to be 25% higher than India and China.
• Flex fuel technology in particular could be a strong export as multinationals seek to consolidate powertrain platforms over diverse markets.
Source: Business Week; Brazil Credit Growth Slows, Auto Financing Rates Jump; 1/26/11
60
BR
AZI
LTRENDS
0
200
400
600
800
1,000
1,200
1,400
US Japan WEurope
NewEU
Russia Brazil China India
Light Vehicles per 1,000 Inhabitants
0
2
4
6
8
10
12
14
Fleet Average Age (Years, 2010)
Source: Morgan Stanley: FIAT The Truth About Brazil (July, 2011)
• The Brazilian automotive industry is expected to grow 8% annually through 2016 which is a 50% increase from 2010 levels
• Growth is largely attributed to a low concentration of cars per inhabitant and the a retiring vehicle fleet
• Volkswagen, Toyota, and Honda have announced expanding their manufacturing capacity to capture a greater portion of the demand
• Credit is considered the biggest risk to demand; however auto loan duration remains healthy at 3.5 years
Growth Factors
61
BR
AZI
LTHE PLAYERS
Source: Morgan Stanley: FIAT The Truth About Brazil (July, 2011);
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2010
Other
Honda
Toyota
Hyundai
Renault
PSA
Ford
GM
Volkswagen
FIAT
International OEMS dominate
And the Chinese are Coming…
"Brazil is increasingly becoming one of the world's most important markets and no company wants to be left out," Chery Automobile President Yin Tongyue said while laying a cornerstone of the factory. "This is our biggest investment outside China and will be the base of exports for all of South America."
About 85% of the company's production will be directed at Brazil, where Chery expects to have a 1% share of the market of more than 3.5 million vehicles sold a year. The remaining 15% will be exported to other Latin American countries.
The Jacarei plant will lead to the arrival of about 20 Chinese parts suppliers, as well as local producers to manufacture compact cars. The factory represents a $400 million investment by Chery and China's Development Bank. Cherycurrently has 12 factories that only assemble cars from imported parts.
- Wall Street Journal Online, Paulo Winterstein, July 2011
62
BR
AZI
L
Ethanol
- As the second leading ethanol producer in the world, flex fuel is a much more affordable solution in Brazil than it is in other countries
High Taxes- Brazil’s high import taxes makes HEV or EV penetration very
challenging
Electricity Cost- Electricity cost in Rio and Sao Paulo are $0.18 and $0.19 per kWh
respectively compared to the US average of $0.09 per kWh
Infrastructure- Urban charging requirements and the power grid could not handle auto
electrification
EV POTENTIAL
Not Charged Up
Flex Fuel87%
Petrol 8%
Diesel5%
2010 Vehicle Registrations by Fuel
Source: ANFAVEA, 2010
63
BR
AZI
LTRANSACTIONS
Announced Date Target Type
Transaction Value ($USDmm) Buyers Sellers Business Description [Target]
04/04/2011 Mahle Metal Leve S.A. (BOVESPA:LEVE3)
Public Offering
172.21 NTN Corp. (TSE:6472) Mahle GmbH MAHLE Metal Leve S.A. engages in the development and production of components and systems for automobiles worldwide.
01/12/2011 Flexitech do Brazil M&A 9.7 Flexitech Europe SAS Trelleborg AutoBrasil Ltda.
Flexitech do Brazil manufactures brake hoses for light vehicles.
09/27/2010 WVR Rolamentos LTDA M&A N/A Dayco Products, LLC N/A WVR Rolamentos LTDA manufactures automotive tensioners and pulleys.
04/30/2010 Autometal S/A. (BOVESPA:AUTM3)
Public Offering
263.92 N/A N/A Autometal S.A. and its subsidiaries engage in the design, manufacture, and sale of components and sub-assemblies for the automotive market.
03/01/2010 MMC Automotores do Brasil S/A
M&A N/A BTG Pactual Gama Participações
N/A MMC Automotores do Brasil S/A manufactures, assembles, and distributes Mitsubishi brand vehicles in Brazil.
08/04/2009 Arvin Innovation, Inc., Steel Wheel Business
M&A 180.0 Iochpe-Maxion S.A. (BOVESPA:MYPK3)
Arvin Innovation, Inc.
Steel Wheel Business manufactures automobile steel wheels and is located in Brazil.
01/09/2009 Sawem Industrial Ltda., Business Manufacturing Iron Flywheel
M&A 3.57 Brembo Do Brasil Ltda. Sawem Industrial Ltda.
Sawem Industrial Ltda. Engages in the manufacturing of automobile parts and equipment.
11/28/2008 Vanzin Industrial Auto Peças Ltda.
M&A N/A Tuper S/A N/A Vanzin Industrial Auto Peças Ltda. Manufactures and markets auto components and parts.
03/12/2008 Powertrain do Brasil -Trotec Motors Ltda.
M&A 112.08 Fiat Powertrain Technologies S.p.A.
Old Carco LLC Tritec Motors Ltda. Manufactures gasoline engines in Brazil.
Source: CapitalIQ
6464
ABOUT HEADWATERS
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Independently owned, multi-disciplinary growth advisory and investment banking firm
- Leading firm for serving the private wealth industry in North America, working with entrepreneurs and business owning families
Over $15 billion of middle market deals and over $75 billion of deal experience
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Formed via merger of Headwaters (founded 2001) and Source Capital (founded 1982).
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