LDM Technologies Inc., which took itself off the market after looking for a buyer earlier this year, is now talking to a private investor about a sale, according to an internal memo and two sources familiar with the company.
President and Chief Executive Officer Alan Johnson, in a July 7 memo to employees, wrote ``a private equity investor has made an offer to buy LDM. Our owners are seriously considering this offer. ... The investors have indicated that they hope to grow LDM through additional acquisitions and investments. I view this as a positive.''
Johnson did not identify the buyer, and LDM had no comment.
Auburn Hills, Mich.-based LDM injection molds interior and exterior automotive components and employs 3,595 in five states and Canada. The company reported sales of $390 million in fiscal 2002, which ended Sept. 29. Its largest customers are Ford Motor Co., General Motors Corp., Visteon Corp. and DaimlerChrysler AG.
In the first fiscal quarter, ending March 30, the privately owned firm reported $109.2 million in sales and profit of $2.9 million.
If the deal goes through, it would be just the beginning of additional private equity investment in midsize auto suppliers, investment bankers and analysts say.
Private equity companies have been quiet the past year and have pent-up demand to invest. Auto suppliers, even profitable ones like LDM, are valued low right now, said Rajesh Kothari, managing partner of Birmingham, Mich.-based Seneca Partners Inc.
A private equity firm likely will take LDM Technologies and combine it with another company or companies, Kothari said. The idea is to buy a company at about three or four times earnings before interest, taxes depreciation and amortization (EBIDTA) and grow it through acquisition or by winning new business. Then the private equity player would take the company public or sell it when it can get six or seven times EBITDA.
``There are hundreds of middle-market buyout firms throughout the Midwest and East Coast who are buying little manufacturing companies and consolidating them,'' he said.
LDM Technologies' first sale process reportedly was a compromise by the founding owners, Richard Nash and Joe Balous. Both own 50 percent of the company and one wanted to sell. They agreed to look for a buyer, but with a set price in mind.
The price apparently was not met because the company took itself off the market during the spring. But interest in the company continued, according to Johnson's memo.
Besides pent up private equity capital, the recent interest rate cut can help push through borderline deals, said Phil Gilbert, managing director of Southfield, Mich.-based P&M Corporate Finance LLC.
A lower interest rate will not make a bad deal a good deal, but it will help push through a good deal, he said.
Private equity deals also are flexible, meaning an original owner sometimes can keep a portion of the company.
Terry Kosdrosky is a staff reporter for Crain's Detroit Business, a sister publication to Plastics News.