By the end of this year, Magna International will complete its purchase of Getrag, one of the biggest independent manufacturers of vehicle transmissions in the world. In a statement, Canada-based Magna said that the enterprise value of Germany-based Getrag is around $2.7 billion (which includes debt and pension liabilities amounting to $762 million).
Rumors had started spreading last Wednesday about this transaction between the two companies. In this statement, Magna CEO Don Walker said that the company considers the expansion of its powertrain segment as a “strategic priority.” He said that Getrag, which is known for building dual-clutch transmissions, is a “technology leader” in this product.
This makes it in an ideal position to gain from the trends in the auto industry that favour those with reduced emissions and improved fuel economy. Bloomberg revealed that last year, Magna's powertrain-systems unit was able to generate nearly $5 billion in sales. This is equivalent to approximately 14% of total revenue.
Reuters said that under the deal, Getrag is valued at 8.8 times its anticipated core earnings. This represents a significant premium to European car parts makers, which trade at an average multiple of 7. Walker emphasized that Getrag is attractive because of being at the forefront of technology in this area as well as having joint venture relationships, particularly in China.
In a conference call, Getrag CEO Mihir Kotecha said that talks have been ongoing between Getrag and Magna for the last 8 to 9 years. The discussions only became more serious after a review in 2012 of how Getrag hoped to finance itself in the future.
He added that talks persisted about a possible stock market listing while discussions were opened with other car parts manufacturers. But eventually, Getrag and its owners determined that Magna would be a financially strong partner as well as be good fit due to its location and technical expertise.
An insider said that when the deal is realized, there will be no layoffs and the Getrag will be able to keep its name and its plants. Savings will be made from areas like joint procurement. Magna CFO Vince Galifi estimates that there will be cost benefits of possibly 10% of enterprise value.
Before news about the deal came out, David Tyerman, a Toronto-based analyst with Canaccord Genuity, said that Magna has already built a name for itself as a big player in transmission cases and other technologies so it’s likely that Getrag’s purpose is to provide a full transmissions lineup.
Founded in 1935, Getrag has its headquarters in Untergruppenbach, near the German carmaking hub of Stuttgart. In 2013, this family-owned company posted sales of $3.6 billion. It has 23 plants around the world with 13,500 employees. After this year’s acquisition of TRW Automotive Holdings Corp., its rival ZF Friedrichshafen AG was able to reach annual revenue of around $33 billion.