Case Studies - AxleTech International
Helping a Corporate Orphan Realize Its Potential
Our investment in this Troy, MI-based maker of heavy-duty axles has been characterized by Wynnchurch partner John Hatherly as a "cooperative disposition" in which we helped achieve results for AxleTech far beyond what their corporate parent envisioned for them.
AxleTech had been essentially orphaned within ArvinMeritor, the "Fortune 1000" vehicular supplier from which we bought the company in late 2002. AxleTech's revenues had declined by nearly $100 million during the four years before our acquisition, and the company had been for sale for two of those years. John Hatherly learned of the AxleTech opportunity from a former business colleague, and led Wynnchurch in nearly a year's worth of due diligence and negotiation before consummating the purchase from ArvinMeritor. Negotiations nearly fell through a half-dozen times before we arrived at a final agreement.
Having made a number of industrial platform acquisitions, we were well positioned to understand AxleTech's strengths and challenges. AxleTech's intellectual property—primarily its axle designs—were promising, and its products were integral to a number of military, agricultural, construction and material handling vehicles. But the company's cost structure needed a dramatic overhaul, which required a commitment on the part of management to implement change.
The key to helping AxleTech achieve its potential was the hiring of Mary Petrovich, an experienced industry executive, as CEO. "We had Mary on our payroll before we finalized the acquisition," Mr. Hatherly recalls, "and we provided her the full breadth of our firm's resources as she transformed the company's cost structure and instituted new initiatives in global procurement and aftermarket products." Tough choices were necessary, including the reduction of the unionized work force at a Wisconsin plant and the implementation of a more realistic wage and benefit structure. We also helped provide the contacts for aggressive pursuit of a strategy to supply the defense industry.
Revenues and profitability rose dramatically during the three years of our investment. In September 2005, AxleTech was sold for $341 million to a private equity firm. The transaction equated to a 37-fold return on our investment, and positioned AxleTech to further expand in lucrative new markets.
John Hatherly sums up Wynnchurch's success with AxleTech succinctly: "Our role was to support management with discipline, accountability and vision, and to provide the resources so that the management could implement their plan. We worked with Mary and the AxleTech team to develop a blueprint for success, then helped our management partners turn that plan into reality."