Electric car parts firm set for big London IPO

Car parts maker TI Fluid Systems is finally set to float on the London Stock Exchange, raising a €425 million (£380 million) a year after pulling out of an IPO derailed due to market uncertainty in the wake of the Brexit vote.

The cash – less than the €600 million TI was after in September 2016 – to be raised by private equity owner Bain Capital, will reduce December 2017 year-end net debt to around two times adjusted cash profit (EBITDA). Existing shareholders will seel shares, too, and we hear the free float will be at least 25%.

Having supplied Ford with parts for its first Model T production line back in the 1920s as Bundy Corporation, TI now expects to capture growth in the electric vehicle (EV) and hybrid EV (HEV) markets. Its Thermal division already makes parts used in EV battery packs.

“We remain well positioned to capitalise on the automotive megatrends of reduced emissions and improved fuel economy,” chief executive and president William L Kozyra tells us. “Our confidence continues to increase that EV/HEV trends will be highly beneficial.”

As well as its thermal management systems, TI also makes brake and fuel lines, plastic fuel tanks, pump modules and “other key components designed to meet mandated fuel economy and emissions control requirements”.

TI supplies all major carmakers in every key region, including North and Latin America, Europe and the Middle East. It’s operated in China for over 30 years and derives 19% of its revenues there.

Bain Capital, joint owner of recently failed US retailer Toys R Us, bought TI Fluid for £2.4 billion from Oaktree Capital in 2015.

Between 2014 and 2016, the company said it grew revenue by almost a quarter to €3.35 billion – a compound annual growth rate of 11.4% – and adjusted operating profit by 40% to €362 million.

Revenue and profit in the first half of 2017 was up by 9% to €1.78 billion and €202 million respectively. Margin was flat at 11.4%, but is up from 9.6% in 2014. Free cash flow conversion in the first half of 2017 was 73.9%.

TI expects to pay a dividend, with a payout ratio of around 30% of reported net income, which “will reflect the underlying growth, earnings and cash flow of the business”.

Kozyra added: “Since we first considered an IPO, the group has had continued strong business performance, reinforcing the attractiveness of the markets we operate in and our position as the leading global automotive supplier in fluid handling systems.”

He’ll continue as CEO and president, roles he’s held since joining from Continental AG’s North American division in 2008. Non-executive director Manfred Wennemer, who was CEO at Continental between 2001 and 2008, becomes chairman.

Founded in Detroit in 1922 as Bundy Corporation, the company was bought in 1987 by Oxford-based TI Group, which later merged with Smiths Industries to created Smiths Group (SMIN). It demerged from Smiths in 2001 and has been owned by private equity companies ever since.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.