Magna agrees USD1.75-bil. deal to acquire Getrag

Supplier group Magna International has announced an agreement to buy Getrag Group, one of the world's largest transmission suppliers. The proposed dealer includes Magna's purchase of 100% of Getrag's equity for EUR1.75 billion. According to a joint statement, the amount represents an enterprise value of EUR2.45 billion, less proportionate net debt and proportionate pension liabilities assumed to be approximately EUR700 million. The two companies expect the deal to close near the end of 2015, "subject to a number of conditions including obtaining all necessary regulatory approvals."

Getrag offers manual, automated-manual, dual-clutch, hybrid and other advanced transmission systems. Magna expects that the architecture of Getrag's product line is well-positioned "to support current and future automotive powertrain configurations. Getrag is a leader in the growing market for dual-clutch transmissions ('DCTs')," the statement read. Magna cited Getrag's various joint venture (JV) relationships as well, which include Ford, Chinese makers Jiangling and Dongfeng. Getrag's customer list is said to include BMW, Daimler, Renault, Volvo and Great Wall.

In explaining the decision, through a statement, Don Walker, Magna's Chief Executive Officer, said, "As part of our ongoing product portfolio review, we have identified the expansion of our powertrain business as a strategic priority.  Getrag is an excellent fit with this strategy. Getrag is a technology leader in a product area that we believe is well-positioned to benefit from industry trends that are driving increased vehicle fuel-efficiency and reduced emissions. Getrag's joint venture relationships also provide significant growth potential in China, the world's largest automotive market and the fastest growing market for DCTs. Lastly, Getrag has a highly capable and experienced workforce, including deep powertrain engineering expertise."

Getrag's employee count is reported to be 13,500, with 13 manufacturing and 10 engineering centres in nine countries. The supplier's 2014 consolidated sales are reported to be EUR1.7 billion (excluding sales generated in non-consolidated JVs. Including those, Getrag reported USD3.6 billion in sales for 2013, according to Automotive News. By comparison, ZF Friedrichshafen, after its acquisition of TRW Automotive, generates about EUR30 billion in annual revenue.

According to media reports, Getrag and Magna had been in talks for eight to nine years on this possibility, as well as Getrag speaking with other carmakers. Reports suggest that Getrag's brand and plants will be maintained, with savings expected from joint procurement.

Outlook and implications

The Magna-Getrag deal is another consolidation in the supplier business, following the notable ZF-TRW consolidation, which completed in May 2015. In buying a significant automatic transmission supplier, Magna expects to become a complete driveline system supplier, according to IHS Automotive transmission analyst Chris Guile.

Magna brings existing four-wheel and all-wheel driveline technology and experience to combine with Getrag's transmission portfolio, with the only true overlap, Guile says, is that both have activity in reduction transmissions used in EV products. Additionally, we expect that Magna is looking at opportunities to grow volumes at Getrag. We see an increasing number of automakers choosing to outsource some or all transmission production. As non-manual transmissions become increasingly complex and expensive for automakers to develop to meet a variety of needs, buying transmissions from suppliers can enable effective sharing of development costs. That effect can cascade into enabling choosing more expensive cutting-edge products, more simple and cheaper products, or some combination of both, depending on the varied market and consumer expectations.

Guile says that the impact on rivals may not be significant, as there are not many rivals. However, for a company which had been a family-owned company until now, it is possible that ownership by a global Tier 1 may result on shifts in Getrag's strategic philosophy. One supplier that might be affected is GKN, which bought Getrag's driveline business in 2011 and may still supply parts. We also note that the company will now have the ability to bundle transmissions with all-wheel or four-wheel drive systems. This could ultimately create a situation where other all- or four-wheel-drive system suppliers are unable to bid.

Over the past decade, Getrag took an early decision to invest heavily in dual-clutch transmission technology – and then suffered some setbacks in DCT acceptance, amplified by the recession. Guile says that Getrag's determination to stick with the technology has enabled it to begin to see benefits in Europe and China. Getrag supplies BMW, Renault-Nissan, Ferrari, Ford, Mitsubishi and Smart. As Getrag supplies manual and dual-clutch transmissions which American consumers have not warmed to, there is also a possibility for Magna to help Getrag reinvent the DCT for the North American marketplace, noted North American transmission analyst David Petrovski.

The IHS Automotive Transmission forecast data show Getrag and Getrag-Ford have increased from 1.17 million units in 2000 to 2.88 million in 2014, forecast to increase to more than 5.0 million units in 2020. Ford remains Getrag's largest customer, both through the core company and the Getrag-Ford JV. In 2015, Ford is expected to install more than 1.0 million of the JV's 1.38 million units of transmission production. Getrag delivers to a wider range of automakers than the JV, but Ford is expected to take nearly 369,000 units of Getrag production. The next largest clients for Getrag are BMW and Renault-Nissan, after Ford's 1.0 million units.