V Jagannathan reports on Sundram Fasteners' acquisition strategies.
When takeover tycoon Suresh Krishna of the $3-billion TVS group looks out of his seventh floor office window at Chennai's Auras Corporate Centre, it is not always to admire the view.
The chairman and managing director of Sundram Fasteners Limited often spends time contemplating markets beyond the shores – not only for fasteners, but also for forgings and fastener manufacturing among others. And of late it has increasingly been the latter. What started as a small nuts and bolts company in the '60s now ranks as one of the top fastener manufacturers in the world.
Recently the Rs1,037-crore turnover Sundram Fasteners announced its intention to acquire Peiner Umformtechnik GmbH of Germany, which manufactures large-diameter, cold-formed and hot-forged bolts and nuts for large trucks, windmills, heavy industrial, and construction equipments. Peiner's single plant with 300 employees has customers such as Mercedes Group, Volkswagon, Motoren Werke, John Deere and couple of tier-I auto ancillaries.
The German company is a wholly owned subsidiary of the Textron Deutschland Beteilingungs GmbH, which is part of the $1.9-billion revenue Textron Fastening Systems Inc. Textron Fastening Systems is a 100-per cent subsidiary of the $10-billion American conglomerate Textron Inc,) that manufactures aircrafts – Cessna, Bell Helicopter – fasteners, golf cars, turf maintenance vehicles, finance, pump, power transmission, engines and others.
Seated behind his paperless table, Krishna explains the recent acquisition, "Everybody knew that we are on the look out for good picks and this came to us."
Peiner is his second acquisition in Europe. In 2003 the company acquired the precision forging business of Dana Spicer Europe Ltd, UK, now known as Cramlington Precision Forge Limited, for Rs11.6 crore.
For Krishna, a soft spoken literature graduate, making acquisitions – whether companies or just their plants – seems to come naturally. In 1992, he brought to India the radiator cap line of General Motors and, in 1999, acquired Autolec Industries. Recently two group engineering companies – Upasana Engineering Limited and Upasana Component Limited – that undertook job works for Sundram Fasteners, in addition to manufacturing spokes and nipples for two-wheelers, were acquired.
Today this nuts and bolts company is among those with the highest turnovers in the TVS group - ahead of several listed companies with more exciting products.
Nuts and bolts of the Indian MNC
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Reserves and Surplus
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Heading for the global top 3
Interestingly, Krishna follows a mix of growth strategies – organic expansion as well as greenfield projects – within India and overseas to achieve his target of moving up from being among the top 10 global automobile fastener manufacturers to the top three.
"My focus is on automotive fasteners. I don't want to get into the aerospace segment as it is a highly protected business and cracking the entry barrier is going to be very difficult."
However, Krishna does not want to fix any target date for achieving that goal. "I don't believe in any time-frames and targets as they could result in costly and irreversible mistakes. Since nearly 50 per cent of Sundram Fasteners is held by the public at large, money should not be put at risk."
That also explains why he is not looking at the US component group Delphi that filed for bankruptcy protection earlier this month. "It is very difficult to manage and turn a financially sick company around," he explains.
According to Sampathkumar Moorthy, president, operations, "The process towards moving up the global top three is what you are seeing in our acquisitions, overseas presence, domestic expansion and joint ventures."
He explains the company's relentless drive for acquisitions and growth, "The company should exist for the next 50 years and that is why the acquisitions and other plans are being executed."
It started in 1988-89, recalls Moorthy. "In that year we decided not to be geographically confined. While we will expand organically, we will also grow inorganically." Though exporting in a small way, the first major action taken to go global was the acquisition of the General Motor's plant to stamp out radiator caps. Soon after other acquisitions and projects followed.
The philosophy behind acquisitions
Krishna's reason for takeovers is simple – to acquire customers. But the strategies for different regions differ. Explains Moorthy, "The global automotive components, forgings and castings business will gravitate towards Indian suppliers. However, the strategies to supply to the West and the East differ as China is also moving aggressively."
In the case of developed markets, Sundram Fasteners usually follows one of the following strategies: (a) supply from India taking advantage of the arbitrage on labour and other costs (b) have a presence close to the overseas customer and (c) bring home the entire production line from an overseas company to cater to its market when it is uneconomical to acquire and operate or set up base overseas. This enables the company to acquire a ready customer base along with the production capacity.
"The idea is to have a ready made customer base and later expand the market. We manufacture the large-sized products overseas, closer to the markets and back-end the small items to India, if it is economical. This way we keep freight costs low," says Moorthy. That is what is happening at Cramlington Precision Forge.
Sundram Fasteners has successfully brought to India the production lines of its radiator cap supplies to General Motors. It is now following the same strategy with sintered valve guides and valve seats at its Sundram Bleistahl plant – a 76:24 joint venture in Hosur put up at an investment of Rs25 crore.
Sundram Bleistahl (expected to commence production in the last quarter of this year) will also add new products to its portfolio at an investment of Rs50 crore over the next five years to achieve its sales projection of Rs125 crore.
The east is not the west
However, Sundaram Fasteners has followed a different strategy for developing its eastern markets. Supplying to the east from India is far tougher as costs, particularly labour, are fairly similar. Therefore, the company established a manufacturing base, in China through Sundram Fasteners (Zhejiang), with an initial investment of $5 million. Today, the company does business worth around Rs1 crore catering to the European market.
"The current capacity is 6,000 ton per annum can be increased to 10,000 tpa, as and when required. Over the next three years the investments will stand at $12 million," says Moorthy.
However, selling within China will take some more time, though talks have been initiated with several MNC car manufacturers there.
According to Moorthy, a vision plan for the Chinese subsidiary is currently being prepared. Its plant will soon start manufacturing bearing housings for the turbo charges, thereby increasing the product portfolio. The total investment is expected to be around Rs10 crore for the new projects.
Apart from China, Sundram Fasteners also has a subsidiary in Malaysia – RBI Autoparts Sdn.Bhd, that came along with Autolec. The company supplies pumps to state-run Malaysian auto manufacturer Proton.
The next pick
Where will the next acquisition be? Probably in the US, which is the world's largest automobile market. The takeover tycoon, however, discounts the possibility of one in the near future.
But there are opportunities around. For instance Textron is in the process of restructuring its 19- location fastener business.
Says Timothy G Weir, Textron's director of communications, "In September this year, Textron announced its plans to thoroughly evaluate a range of strategic alternatives for Textron Fastening Systems. The alternatives it will consider include selling part of the business or possibly the entire business. However, it has not yet decided whether to sell Textron Fastening Systems."
Textron Fastening Systems' global products and services include a broad array of threaded fasteners, blind fastening systems, cold-formed components, installation tools, automated assembly systems and solutions, applications engineering, and full-service-provider fastener management services.
According to Lewis Campbell, Textron's chairman, president and CEO, additional capital and other resources are required to meet the profitability and return goals for the fastening business. Hence Textron's management team and board of directors have concluded that strategic alternatives will be evaluated for the business that includes a sale of all or a significant portion of the business.
Reiterating that nothing has been decided on the issue of alternatives for the fastening business portfolio Weir adds, "The possible divestiture of Peiner Umformtechnik to Sundram Fasteners is separate from Textron's review of its strategic alternatives for Textron Fastening Systems."
Fastening the integration
Acquiring a company may be easy, but the mess-up begins at the time of integration. But Sundram Fasteners, the nuts and bolts company hasn't faced serious integration issues whether in the case of Autolec in India or Cramlington Precision Forge in the UK.
"Earlier Cramlington Precision Forge was a division of a bigger company and now it is separate entity by itself with a business plan of its own. People there now have a sense of belonging."
Sundram Fasteners, the winner of several of supplier-of-the-year awards from General Motors and the country's first ISO 9000 company, is now implementing the total productive maintenance (TPM) at its overseas outfits. TPM is the only religion at this company.
The one important task that needs attentention according to Krishna is consolidating the gains. "We need to consolidate as it will be difficult to manage without it."
On the domestic front the company, commanding a 70-per cent market share in fasteners, spent around Rs83 crore last year for capacity expansion.
What is noteworthy amongst all these things is that the company has not lost a single day's production to strikes since 1966. For the staff, the motto is `Think Customer'. Interestingly, a belief their boss shares – acquiring customers through takeovers.
also see : Textron Fastening