Opex Awards 2018: Cerberus drives IRR on car interiors business

The firm carved out Visteon's failing interiors unit to make Reydel Automotive and take the EMEA upper mid-market award.

The automotive industry is going through a period of significant change. It is within this context that Cerberus Capital Management’s turnaround of Visteon Corporation’s global automotive interiors business into Reydel Automotive is even more impressive.

It’s little wonder the judges picked Reydel – in addition to creating cultural shifts, and change at both the corporate level and on the plant floor, Cerberus expects to make a whopping 7.8 times multiple on invested capital and a 112 percent internal rate of return on exit which was signed in April.

New York-listed Visteon had wanted to divest its automotive interiors unit – which operated 20 plants, R&D and sales facilities across 16 countries – for several years prior to Cerberus’s 2014 acquisition in what was a proprietary deal. The unit was losing money and was substantially cashflow negative in 2013.

It was Cerberus’s experience in the global automotive business as well as in complex corporate carve-outs and operational turnarounds that made the firm the ideal partner for the Visteon unit. Cerberus in fact viewed the automotive interiors sub-sector as ripe for consolidation and believed the unit could become a prized part of this area – something that would prove to be right when Indian automotive parts maker Motherson Sumi Systems agreed to buy Reydel for $201 million in cash in April this year.

How did Cerberus turn a troubled automotive interiors business into a success story? It first set about reorganising the company. The deal – valued at around $185 million – included a $35 million primary equity investment and around a $150 million injection into the business. The interiors business was renamed “Reydel Automotive”, the unit’s original name from the French family business when it was founded three decades earlier.

With improving efficiency a key part of Cerberus’s strategy, the firm set up a manufacturing plant in Chennai and relocated production; it separated IT systems and invested in capital equipment and software licences.

One of the biggest changes was to executive management. New recruits included a vice-president of operations, treasurer, controller, head of Asia sales, general counsel and chief technology officer. Cerberus executives including more than a dozen operations professionals spent substantial time with the new leadership team to implement the carve-out and turnaround plan and drive operational improvements across finance, human resources, manufacturing and legal areas.

Cerberus was relentless in improving manufacturing efficiencies. The firm introduced a review of new programme bid proposals to focus on “core assumptions” which protected Reydel against margin risk. It also focused on “continuous improvement” at each of Reydel’s plants which included a company-wide programme that collected input from all levels of staff at every plant. This removed the siloed culture from each facility and helped lead to year-on-year cost reductions of at least 5 percent annually.

Over a three-year period with the help of Cerberus, Reydel’s EBITDA grew from negative $16 million to $68 million.

“Reydel was a successful partnership that leveraged Cerberus’s experience with global automotive businesses, highly complex corporate carve-outs, and operational turnarounds,” says Dev Kapadia, senior managing director of Cerberus and co-chair of the firm’s private equity investment committee.