Less than a year after buying fuel-system supplier Pilot Industries Inc. out of bankruptcy, Cerberus Institutional Buyers LP is ready to sell the business for more than double the money it paid.
Martinrea International Inc., a Vaughan, Ontario-based producer of metal fuel-system components, announced Nov. 29 it will buy Pilot for C$133 million (US$85.4 million), with C$95 million (US$61 million) in cash. The deal is to close before the end of December.
Cerberus, a New York investment group, paid $41.5 million Jan. 31 when it purchased Pilot out of Chapter 11 at U.S. Bankruptcy Court in Detroit.
The purchase will give Martinrea access to Pilot's technology and a wider customer range, while allowing both companies to explore complete fuel-system production.
Pilot has researched a system linking its multilayer thermoplastic fuel lines to a hydroformed steel tank, a system that would compete with all-plastic modules already on the market. Pilot also produces composite heat shields and structural components.
Martinrea uses plastics in its components, but now buys them from outside companies, Executive Vice President Nick Orlando said. While using Pilot's plastics capabilities, the Canadian group also will use its hydroforming and steel stamping to bring about that complete system created by Pilot.
``Martinrea has leading manufacturing techniques, while Pilot has excellent research and development capability, product management skills and a strong history of innovation,'' Fred Jaekel, Martinrea president and chief executive officer, said in a Dec. 2 announcement of the acquisition.
Dexter, Mich.-based Pilot was a pioneer in thermoplastic fuel lines, but in its quest to become a full-service supplier it racked up extensive investment costs that it could not make up in contracts. It also had 75 percent of its sales linked to Ford Motor Co., and as the automaker's sales dropped, Pilot also suffered.
Pilot had annual sales of about $250 million by 200, but ended fiscal 2001 with a loss of $12.7 million on sales of about $170 million, and filed for Chapter 11 protection in December 2001. Cerberus, which buys and sells companies with tough prospects, stepped in and purchased the assets, bringing in Morris Rowlett as chairman. Pilot founder Bob Davis remained with the business in a technology development role.
He will continue in a similar post with Martinrea, as executive vice president-fluid systems.
``We think that the future of the fluid-management-systems business is to produce the entire fuel system, including fuel fillers, fuel and brake bundles and gas tanks,'' Davis said. ``We intend to be the leader in this field.''
Pilot's heavy reliance on Ford, meanwhile, will help to balance Martinrea, which has General Motors Corp. as its largest customer.
Martinrea is making an interesting acquisition with Pilot, said industry watcher Joel Kopinsky, a principal with ITB Group Ltd. of Novi, Mich. Martinrea already has a good reputation as a niche player in fluid handling.
``Very rapidly, they could become a major player in fuel systems,'' he said. ``It should be quite a good move for them.''
That quick development in the industry is Martinrea's intention, Orlando said.
``We think it's an excellent combination,'' he said. ``I'm sure there will be obstacles along the way, but we're ready to go.''
The company already was in transition, with the Martinrea name adopted in June following the merger of Royal Laser Tech Corp. and Rea International Inc.
The company expects to post more than C$300 million (US$192 million) in sales this year. It has 1,800 employees worldwide and little bank debt.
Pilot has 1,370 employees and 10 locations, including manufacturing operations in Saltillo, Mexico. Martinrea was about to build its first Mexican plant, but now will transfer its plans to the Saltillo site, Orlando said.
The Canadian company's payment reflects Cerberus' efforts to improve the overall business, Kopinsky said. Under Rowlett's leadership, the company won an extra $240 million in new business contracts and shored up its operations.
