KKR’s car crash will leave Japan buyout wreckage – Reuters.com
An employee of Marelli?fs factory wearing a protective face mask and a vest equipped with battery-powered fans at the waist, to prevent heatstroke during summer season, is seen amid the coronavirus disease (COVID-19) outbreak, in Ora Town, Gunma Prefecture, Japan July 30, 2020. Picture taken July 30, 2020. REUTERS/Naomi Tajitsu
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MELBOURNE, March 10 (Reuters Breakingviews) – KKR’s (KKR.N) car crash will obstruct the path for Japanese buyouts. Marelli, an automotive parts supplier the private equity firm built from pieces of Nissan Motor and Stellantis (STLA.MI), kicked off a giant restructuring process with creditors this week . It’s precisely the sort of wreckage feared by local banks, companies and politicians that keeps such deals from kicking into higher gear.
The premise came straight from the private equity owner’s manual: borrow large sums to pluck unloved divisions out of companies, mash them together, hack out costs, improve efficiency and find more customers. KKR in 2016 agreed to acquire Nissan-backed Calsonic Kansei for up to $4.5 billion, and then in 2019 paid $6.5 billion to buy Magneti Marelli from what was then called Fiat Chrysler Automotive.
Although KKR did something similar with smaller medical devices maker PHC (6523.T), steering Marelli proved unwieldy. Shaking up Calsonic was a big enough cultural challenge in a complex industry before even trying to combine it with a larger Italian peer. The pandemic and supply-chain snarls exacerbated problems. Sales tumbled 22% in 2020 from the previous year.
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A hulking balance sheet also slowed Marelli down. The Calsonic transaction involved debt equivalent to nearly 6 times EBITDA. Buying Marelli pushed total borrowing to more than 1 trillion yen ($9 billion), probably without lowering the multiple of earnings. Rivals Valeo (VLOF.PA), BorgWarner (BWA.N) and Magna International (MG.TO) all carry a far lower proportion of …….
Source: https://www.reuters.com/markets/asia/kkrs-car-crash-will-leave-japan-buyout-wreckage-2022-03-10/