With so much debt appearing on the balance sheet, I believed that shares more represented a call option rather than a serious investment, leaving both huge risks to the downside but also the upside. This resulted in very non-demanding multiples, as was typically applied to automotive suppliers. Shares of American Axle fell in a big manner upon the announcement of the deal, down $3 to $14 per share on the back of the premium paid for the business, as investors arguably were fearful about the added leverage despite the potential for earnings to come in close to $3 per share.
Outlook 2016 quick parts not saving pro#
The pro forma business was set to generate $7 billion in sales, just over a billion in EBITDA and trade around 3-4 times leverage ratios. MPG was set to add $3.05 billion in revenues and $528 million in EBITDA, with both metrics just a bit smaller than American Axle, as another $100 million in costs synergies was projected.
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Another benefit, the reliance of American Axle on General Motors ( GM) was set to fall from 66% to still a high 41%. The $3.3 billion purchase of MPG was huge, giving the company strong engineering expertise in powertrain components, as the combination is set to provide integrated manufacturing capabilities across powertrain, drivetrain and driveline. After all, American Axle itself generated $3.9 billion in sales in 2015 on which it posted EBITDA of $571 million with the company awarded a $2.3 billion enterprise valuation, although a substantial part of that valuation included net debt.
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When American Axle announced to acquire MPG in a $3.3 billion deal in 2016, that was a huge deal. This includes a tough automotive market and secular headwinds from the electrification of cars and trucks.Īmidst these headwinds, American Axle has been unable to create value for its investors, but as the share of electrification picks up and headwinds might dissipate a bit, it is a low (equity) valuation which might be compelling, but some real execution would be required for that to happen.
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The company announced a huge deal, effectively a merger, with high promises at the time, but the results of the deal have not played out fully amidst secular headwinds. In fact, it was back in 2016 when the company acquired Metaldyne, adding quite a bit of leverage at a good point in the cycle. It has been a long time since I covered American Axle & Manufacturing ( NYSE: AXL).