Deal focus: Hahn & Co agrees transformative bolt-on

When Hahn & Company first saw an opportunity to acquire Halla Visteon Climate Control (HVCC) in 2012, the private equity firm was in the process of deploying its $750 million debut fund. Having failed to win shareholder support for a tender offer to take full ownership of HVCC, Visteon was willing to put its majority stake on the block. But how could Hahn & Co. finance the deal?

Negotiations coincided with the GP's second fundraise, and so the $1.2 billion main corpus was accompanied by a $700 million sidecar to support the HVCC acquisition. In December 2014, the $3.6 billion buyout was announced, with Hankook Tire participating as a co-investor.

Nearly four years on, HVCC has been renamed Hanon Systems and Hahn & Co. is flexing up again, this time with the $1.23 billion bolt-on acquisition of a fluid pressure and controls business owned by Canada's Magna International. It is set to be the second-largest overseas acquisition in Korea's auto parts space – following Samsung's purchase of Harman International last year – and it will add $1.4 billion in revenue to Hanon's 2017 total of $4.9 billion.

More importantly, the deal complements a broader expansion into the electric vehicle space. "There has been a big push at Hanon on e-compressors, which are used to simplify and regulate the battery of an electric or hybrid vehicle. We are now the global leader," says Scott Hahn, CEO of Hahn & Co. "This acquisition fits well with one of the company's four divisions. We are bringing in a lot of R&D and operating expertise, and there will be cross-selling opportunities as well."

Compressors – the heart of a vehicle's air conditioning system – are now the largest and fastest-growing area of Hanon's business. The company is also known for its HVAC technology, used in thermal management systems that extract and re-use heat produced by engines, and its thermal and emissions solutions for conventional powertrains. The fourth division, and by some distance the smallest, is fluid transport, which includes the refrigerant lines that feature on the underbody of most vehicles.

This new acquisition is expected to increase the division's revenue from $400 million to nearly $2 billion. Magna's fluid pressure and controls business comprises 10 facilities with approximately 4,200 employees. It provides automakers with pumps and cooling fan technologies for thermal systems and transmission systems that improve conventional and electrified powertrain efficiency.

Part of the rationale for buying Hanon was the global strength of Korea's auto parts industry. The post-deal value-add has focused on efficiencies and synergies. "We knew we could make efficiency improvements, and there have been entire exercises around smart factories, automation and logistics," says Hahn. "Margins have been growing high teens since we bought the business, so it's a good time to look for acquisitions domestically and overseas."

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• Topics
• North Asia
• Industrials
• Buyouts
• South Korea
• manufacturing
• automobiles
• M&A