VBG Group acquires MCC and expands into new market segments with favourable growth potential

VBG Group AB (publ) has entered an agreement to acquire Mobile Climate Control Group Holding AB (MCC) from investment company Ratos AB (publ) for a cash consideration of SEK 1,790 M on a cash and debt-free basis. MCC is an industry leader in North America and Europe in climate control systems for commercial vehicles. With this acquisition, VBG Group is expanding into new market segments with favourable growth potential. MCC will comprise a new division of the VBG Group. The acquisition is expected to be finalised in November 2016. VBG Group intends to implement a right issue for SEK 800 M.

Summary

• VBG Group has signed an agreement with Ratos to acquire all of the shares in MCC. MCC develops, manufactures and sells complete climate control systems for commercial vehicles and is an industry leader in North America and Europe. MCC will form a new division of the VBG Group.
• Through the acquisition, VBG Group is expanding into new market segments with favourable growth potential. The acquisition will entail a reduction in VBG Group’s market risk through an improved geographic balance in the Group and there are good opportunities for future synergies, primarily between MCC and VBG Group’s largest division VBG Truck Equipment.
• The purchase consideration (enterprise value) amounts to SEK 1,790 M on a cash and debt-free basis.
• In 2015, MCC’s turnover amounted to SEK 1,264 M and its operating profit (EBITA) totalled SEK 152 M.VBG Group’s pro forma turnover for 2015 would increase from SEK 1,315 M to SEK 2,579 M on account of the acquisition and its 2015 pro forma EBITA would rise from SEK 141 M to SEK 293 M.
• The acquisition is fully financed by new bank facilities, including a bridging loan.
• Following the acquisition, VBG Group will implement a new share issue for approximately SEK 800 M with preferential rights for VBG Group’s shareholders. Approximately 40 per cent of the new share issue is guaranteed subject to the terms and conditions outlined below and it is also supported by the major shareholders.
• The acquisition is not subject to the approval of the competition authorities nor is it contingent on any other material terms or conditions. The acquisition is expected to be finalised in November 2016.

Description of MCC

MCC develops, manufactures and sells complete climate control systems for commercial vehicles and is an industry leader in North America and Europe. The company is focused on customised solutions in short and mid-size series. MCC’s four main customer segments are manufacturers of buses, commercial vehicles, off-road vehicles and defence vehicles.

North America accounts for about 80 per cent of MCC’s sales and Europe for about 20 per cent. In North America, the company is the market leader in the bus segment and also holds a strong position in off-road vehicles. MCC is the market-leading supplier of heating systems for buses in Europe, where the company also has a solid market position in complete climate systems for off-road vehicles.

MCC has its head office and parts of its product development organisation located in Sweden. MCC’s major production plants are situated in Canada, the US and Poland, while it also operates its own companies in China and South Africa. In 2015, MCC had an average of 640 employees in the Group.

Background and reasoning

For the past number of years, VBG Group has worked in line with an established acquisition strategy according to which the target companies were to either represent complementary acquisitions for the Group’s existing divisions or acquisitions that could form a separate division. The VBG Group’s acquisition strategy requires potential acquisition candidates to have strong brands and leading market positions in selected niches, high customer value in their products, a diversified customer base and the ability to contribute to international expansion.

MCC meets VBG Group’s acquisition criteria on all counts, and the acquisition of MCC brings favourable growth opportunities for VBG Group. The main opportunities for growth can be found in the buses segment, which is MCC’s largest market segment. Growth in this segment is expected to be driven by increased demand for the number of vehicles, higher penetration of climate systems in vehicles and the ongoing shift in the industry whereby a transition to hybrid electric engines will require new technology for climate control systems – technology that will enable greater financial gearing per vehicle and an area where MCC is at the forefront.

“In strategic terms, the acquisition of MCC is a highly significant business transaction that represents a new chapter in VBG Group’s history. MCC is a well-managed company that meets all of the criteria of our acquisition strategy and the company is active in segments with favourable growth potential moving forward. I am convinced that this acquisition is the right move for both companies as well as our customers, shareholders and employees,” says Anders Birgersson, Managing Director and CEO of VBG Group.

Most of VBG Group’s business is currently in Europe, with the region also accounting for about 80 per cent of sales.  The acquisition will significantly increase VBG Group’s presence in North America.

“While MCC is a global player, North America is nonetheless the company’s largest market. Meanwhile, VBG Group’s business is mainly based in Europe. With MCC as one of the Group’s divisions, the regional imbalance that currently exists in the Group will be corrected. This will further enhance the stability of the VBG Group,” says Anders Birgersson.

MCC and VBG Group’s largest division, VBG Truck Equipment, are driven by the same type of business logic and have similar business models. A key success factor for both companies is the ability to drive development work in cooperation with customers while also generating a need by maintaining close relationships with the end-users.

“We understand MCC’s entire value chain and I believe that we, based on our industrial expertise, can contribute to MCC’s continued development. I am also certain that VBG Group can learn a lot from MCC, for example, in the field of mechatronics. In the long term, we also believe that there will be the opportunity to realise synergies between MCC and VBG Truck Equipment in terms of establishing operations in new markets, and here I am primarily referring to Brazil and China,” says Anders Birgersson.

In organisational terms, MCC will form a separate division in VBG Group. The acquisition is not expected to lead to any other major organisational changes. The new division will be led by MCC’s current CEO Clas Gunneberg, who will also become a member of VBG Group’s Management Group.

“During the period that MCC has been owned by Ratos, the company has developed from an entrepreneurial company with a regional focus to a leading global player with dominating positions in both North America and Europe. It feels positive that we are now gaining an industrial owner with a long-term focus who, together with MCC’s management, can further advance the company. VBG Group is driven by the same business logic and similar business models as MCC and we look forward to jointly developing and strengthening VBG Group,” says Clas Gunneberg, CEO of MCC.

Financial effects for VBG Group

VBG Group’s acquisition of MCC will have a direct impact on VBG Group’s future earnings and cash flow, in part, as a result of the acquired Group and, in part, on account of the debt financing and the planned new share issue.

According to pro forma calculation** for the first nine months of 2016 and full-year 2015, the acquisition would have had the following effects for VBG Group:

*EBITA corresponds to operating profit excluding amortisation of intangible assets. Accordingly, the performance measures do not include, among other items, amortisation of the surplus values allocated to the various categories of intangible assets in connection with an acquisition.  The acquisition of MCC is expected to result in a surplus value of approximately SEK 1,441 M (including reported goodwill in MCC of SEK 1,184 M) that will mainly be allocated to different types of intangible assets (including goodwill) upon preparation of an acquisition analysis according to IFRS.

**Please note that the pro forma calculation is intended to describe a hypothetical situation and is not indicative of the actual outcome of the operating results in the future.

VBG Group’s net indebtedness is expected to increase from net cash assets totalling SEK 5 M to an interest-bearing net debt of SEK 1,785 M (pro forma at 30 September 2016). Assuming that the planned new share issue of SEK 800 M (excluding transaction and issue costs) is fully subscribed, VBG Group’s net debt is expected to amount to SEK 985 M (pro forma at 30 September 2016) following the completed acquisition.

The acquisition of MCC is expected to make a positive contribution to earnings per share for VBG Group during 2017.

Financing and new share issue

The purchase consideration for all shares in MCC will be paid in cash and financing of the acquisition has been secured through new bank facilities from SEB, including a bridging loan. Following the acquisition, VBG Group will implement a new share issue of Series A and Series B shares with preferential rights for the company’s shareholders for approximately SEK 800 M to repay the bridging loan. The decision to approve the new share issue is scheduled to be taken by the Board of Directors in November 2016 and it is expected to be implemented at the beginning of 2017. VBG Group’s Board of Directors will convene a General Meeting of Shareholders to approve the Board’s decision on a new share issue with preferential rights for existing shareholders.

The Herman Krefting Foundation for Allergy and Asthma Research, the SLK Employees’ Foundation and the VBG-SLK Foundation (the “Principal Owners”) have undertaken to vote in favour of the new share issue at a forthcoming Extraordinary General Meeting and to subscribe for their respective pro-rata shares in the new share issue. Furthermore, Lannebo Fonder, conditional upon the completion of the acquisition, has unilaterally undertaken to acquire shares of Series B from the Herman Krefting Foundation for Allergy and Asthma Research corresponding to about 11 per cent of the total number of shares in VBG Group (including shares held in treasury by VBG Group), to subscribe for its pro-rata share in the new share issue and to underwrite any unsubscribed shares with or without the support of preferential rights at a value of SEK 25 M. The Principal Owners’ and Lannebo Fonder’s undertakings to subscribe for shares covers a total of about 40 per cent of the new share issue. In addition, SEB Fonder, Nordea Fonder and Swedbank Fonder, jointly owning about 20 per cent of the shares in VBG Group, have stated that they intend to vote in favour of the new share issue at the Extraordinary General Meeting and subscribe for their pro-rata shares in the new share issue.

Extraordinary General Meeting

VBG Group’s Board of Directors will convene a General Meeting of Shareholders to approve the Board’s decision on a new share issue with preferential rights for existing shareholders. The shareholders will be informed following the completion of the acquisition of MCC.

Terms and conditions of the acquisition

The acquisition is not subject to the approval of the competition authorities nor is it contingent upon any other material terms or conditions. The acquisition is expected to be finalised in November 2016.

Advisers

SEB Corporate Finance is the financial adviser and Advokatfirman Lindahl is the legal adviser of VBG Group in conjunction with the acquisition and the new share issue.

Contact

For more information, please contact:
Anders Birgersson, Managing Director and CEO
Telephone: +46 521 27 77 67, +46 702 27 77 78

VBG Group AB (publ) in Vänersborg is the Parent Company of an international engineering Group with wholly owned companies in Europe, the USA, Brazil, India and China. The Group’s operations are divided into three divisions – VBG Truck Equipment, Edscha Trailer Systems and Ringfeder Power Transmission – with products that are marketed under strong, well-known brands. VBG Group’s Series B share was introduced on the stock exchange in 1987 and is listed today on the Nasdaq Stockholm Mid Cap list.

This information is of the type that VBG Group AB is obligated to disclose in accordance with the EU Market Abuse Regulation (MAR), the Swedish Securities Market Act and/or the Financial Instruments Trading Act. The information was submitted for publication, through the agency of the contact person set out above, at 8:00 a.m. CET on 11 November 2016.