Many suppliers are finding it difficult to switch to electromobility.
(Photo: imago/Michael Weber)
Frankfurt The US holding company KPS goes where nobody else wants to go: to car suppliers that produce parts for cars with internal combustion engines. According to financial sources, KPS is in the process of setting up a $1.5 billion fund to invest in just such companies.
Closing is planned for the end of the first quarter, after which investments should be made. The fund’s target group includes companies in Europe and North America, with destinations in Germany also being considered. KPS could not be reached for comment.
With the transition to electromobility, numerous components are no longer needed – from petrol tanks to cylinder head gaskets to exhaust gas cleaning systems. But it is also clear that cars with internal combustion engines will not disappear overnight. And the delivery of the required components will only succeed with solvent suppliers.
This is where the problem lies. Many suppliers who only produce components for the internal combustion engine are economically ailing and, on top of that, it is difficult to get fresh capital. Banks are avoiding “electro-free” suppliers, and industry experts say that a number of insolvencies are to be expected in the future.
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The new KPS fund wants to shape the consolidation process for suppliers of combustion engines. Because despite difficult prospects, some of them are still making money today. Demand is falling steadily, but at the same time the cost base is also falling. In this way, the suppliers no longer have any development costs and do not have to invest in new machines. When companies merge, synergies can be realized. Solid returns are still considered achievable for a few years. It is precisely such companies that KPS focuses on.
Similar idea not implemented
One obstacle is often that the valuation ideas of the often family-run suppliers differ greatly from those of the investors. Owning families, where a large part of the assets are often in the company, are often of the opinion that their company is still worth a lot, while investors would only buy the company for a low price given the meager prospects – if the regulations of their funds Allow investment in the industry at all.
The idea of a fund for suppliers is not new, but it has not yet been implemented. According to financial circles, a project started in Germany last year has been put on hold for the time being due to only moderate investor interest.
Former Bosch manager Bernd Bohr initiated a fund together with unions and Frank-Jürgen Weise, ex-head of the Federal Employment Agency. The so-called Best Owner Group (BOG) wanted to collect money from private investors in order to then take over small and medium-sized combustion engine suppliers and ensure that they could continue their business in an economically viable manner until the end of the conventional drive system.
The KPS founding partner believes in the old economy.
(Photo: KPS)
Bohr had argued that automakers needed reliable suppliers from the combustion engine sector for the next 20 years and were very concerned that a “disorderly wave of bankruptcies” could occur. But interest in his project was limited.
Bohr and Weise are also part of the advisory board of KPS. It was initially not possible to find out whether they would play a role in the new fund. Bohr declined to comment, and Weise was initially unavailable.
KPS has experience with restructuring cases
What distinguishes KPS from the BOG are the references. In the past, KPS has repeatedly taken over and reorganized companies with poor prospects. For example, five years ago, KPS acquired Adidas’ golf business at a time when the Taylormade brand was losing more than $100 million a year. In May 2021, KPS sold the now profitable company to the Korean investment company Centroid. According to financial circles, the valuation was 1.7 billion dollars, three times higher than when it was entered.
“Our competitive advantage is that we have gained a reputation for being good business owners, trying to strategically advance our holdings and working constructively with employees and unions to do so,” said David Shapiro, co-founder by KPS, last year in the Handelsblatt interview. “So far it has worked, regardless of whether it was about Adidas, Thyssen-Krupp, Bosch or Daimler.”
The KPS universe currently includes assets of twelve billion dollars, the companies in the portfolio have a total turnover of 15 billion dollars. The investment company is responsible for around 163 production sites in 26 countries and around 43,000 employees.
More: Change to e-mobility: the supply industry is becoming a two-class society