Deal focus: CITIC Capital, 3i team up in auto services

 

For years, CITIC Capital and 3i Group have been ships in the night. Both GPs have backed a number of automotive industry companies in Asia, crossing paths occasionally but never formally partnering up. Now a German player with a rare sub-industry specialization is finally bringing them together.

CITIC and 3i are taking a 100% stake in Formel D, a testing, inspection, and certification (TIC) services company that, unlike most of its peers, operates exclusively in the automotive industry. The acquisition will combine CITIC’s Chinese network with 3i’s experience in engineering support.

“It was just one of those deals that made a lot of sense because the China angle is so significant for Formel D,” says Boon Chew, a senior managing director at CITIC. “You need to be very comfortable with China to get your head around what this business is going to need to do well over here for the next couple of years, and you need to be very comfortable with TIC.”

The deal includes a EUR155 million ($180 million) investment from 3i and a EUR72 million contribution from CITIC, with each firm taking a proportional ownership stake. They will help Formel D will seek more clients in various geographies and offer a wider variety of services including virtual testing.

Private equity ownership has been good to the company in the past. Formel D’s seller, German GP Deutsche Beteiligungs AG, invested in 2013 and has marked average annual revenue growth of 17% during its holding period. Turnover reached EUR255 million last year as the company cemented a footprint across 80 locations in 19 countries.

“Together 3i and CITIC will help to further improve this footprint,” says Ulf von Haacke, partner, managing director and head of industrial at 3i. “For investors to add value, 3i and CITIC are convinced that it takes local teams that know these markets, speak the language of local managers and can offer a network of industry contacts and advisers.”

The primary macro tailwinds in this vision derive from a ramp-up in specialized service outsourcing due to increased competition and stricter performance standards – which in turn has prompted more complex modelling among original equipment manufacturers (OEM). Indeed, experimental auto industry R&D – and by extension TIC – is said to be at an inflection point related to growth in vehicle sharing, autonomous driving, electrification and in-car connectivity.

Formel D aims to  exploit this space through more partnerships in North America and Asia. China, however, is set to be the primary focus as the country’s unparalleled environmental and modernization movements converge on the factory floor. “Many Chinese OEMs are not just catching up – they’re looking to lead the way, and over time, they will be at the forefront of this change in the automotive industry,” says CITIC’s Chew. “This trend will only work in Formel D’s favor.” 

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• Topics
• Greater China
• Europe
• Buyouts
• Industrials
• Support services
• China
• CITIC Capital
• 3i Asia Pacific
• manufacturing
• automobiles