HWMB Powertrain and Clean Transportation Overview
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HWMB Powertrain and Clean Transportation Overview

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Provides background information on clean technology in the automotive industry with a focus on transaction activity

Provides background information on clean technology in the automotive industry with a focus on transaction activity

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HWMB Powertrain and Clean Transportation Overview HWMB Powertrain and Clean Transportation Overview Presentation Transcript

  • GLOBAL POWERTRAIN AND CLEAN TRANSPORTATION OVERVIEW 2012 Denver • PittsburghBoise • Boston • Burlington • Chicago • New York • Orange County • San Francisco • São Paolo • West Palm
  • DISCLOSURES AND DISCLAIMERSTHE HEADWATERS MB POWERTRAIN AND CLEAN TRANSPORTATION OVERVIEW 2012 IS NOT AN ANALYST REPORT OR PROSPECTUS ANDIS NOT INTENDED TO PROVIDE BUY-SELL RECOMMENDATIONS REGARDING ANY SECURITY OR COMPANY DISCUSSED WITHIN. WHILEEVERY REASONABLE EFFORT HAS BEEN MADE TO UTILIZE VERIFIABLY FACTUAL INFORMATION, NO INVESTMENT DECISION SHOULD BEUNDERTAKEN BASED UPON THE INFORMATION PRESENTED OR DISCUSSION CONTAINED WITHIN. IN THE EVENT OF CLEAR FACTUALINNACURACY, PLEASE CONTACT HEADWATERS FOR PROMPT REVIEW.THIS DOCUMENT IS EDITORIAL IN NATURE AND CONTAINS FORWARD LOOKING INFORMATION REGARDING THE STATE OF MARKETS ANDFINANCIAL PERFORMANCE OF COMPANIES THAT MAY NOT ACCURATEY REPRESENT CURRENT OR FUTURE PERFORMANCE.THE ANALYSIS AND DISCUSSION PRESENTED IN THIS DOCUMENT IS THE OPINION OF HEADWATERS MB ALONE. NO THIRD PARTY,WHETHER CITED OR NOT, SHALL BE RESPONSIBLE FOR THE STATEMENTS MADE OR USE OF INFORMATION WITHIN. REASONABLEEFFORT HAS BEEN MADE TO ATTRIBUTE CREDIT TO THE SOURCES AND OWNERS OF THE INFORMATION CONTAINED IN THIS DOCUMENT.IF AN OMMISSON HAS BEEN MADE, PLEASE CONTACT HEADWATERS FOR PROMPT REVIEW.THIS DOCUMENT WILL BE USED TO MARKET HEADWATERS ADVISORY SERVICES TO COMPANIES CITED IN THIS DOCUMENT.HEADWATERS MB SHALL BEAR NO RESPONSIBILITY FOR THE UNAUTHORIZED OR INNAPROPRIATE USE AND DISTRIBUTION OF THISDOCUMENT. IF YOU HAVE RECEIVED THIS DOCUMENT IN ERROR OR WITHOUT KNOWLEDGE OF ITS PURPOSE, SCOPE AND INTENDEDAUDIENCE, PLEASE CONTACT HEADWATERS MB IMMEDIATELY. 2
  • TABLE OF CONTENTS1. Powertrain Practice ………………………. 42. Industry Overview ………………………. 93. HEV/EV Technology …………………........ 264. Batteries ………………............ 335. Natural Gas Vehicles ………………………. 426. China ………………………. 477. India ………………………. 528. Brazil ………………………. 589. About Headwaters ………………………. 64 3
  • POWERTRAIN PRACTICE 4
  • POWERTRAIN PRACTICE WHO WE ARE Anant joined Headwaters after several years in investment banking sourcing capital for early and growth Anant Vashi stage companies. Managing Director Prior to investment banking, Anant worked with Sun Mountain Capital, a $90 million New Mexico-based co- 505.690.3561 investment fund focused on emerging technologies and economic development within the state. Prior to that, Anant worked as a Senior Associate for Mesa Capital Partners, a private equity fund which invests in growth avashi@headwatersmb.com opportunities in the service, manufacturing and technology areas. FOCUS: Anant began his private equity career with MWV Pinnacle, a $23 million fund mandated to invest in minority owned or managed companies. He also spent five years as a proprietary equity trader for Electronic Trading Powertrain Technology Group, LLC. Anant earned an MBA from the Weatherhead School of Business at Case Western Reserve Clean Transportation University, an MA in Economics from the New School University in 1999 and BA in Liberal Arts from St. John’s Automotive Supply Chain College in Santa Fe, NM Peter Nam Peter Nam, Director, joined Headwaters from Kerlin Capital, where he served as a Vice President providing strategic advisory and merger and acquisition services to middle market companies across a broad range of Director industries. 949.679.8550 Prior to that, he served as a Vice President at vFinance Investments specializing in mergers, acquisitions, and pnam@headwatersmb.com private placements of debt and equity for emerging growth technology companies. Peter began his investment banking career with Credit Suisse First Boston in their Global Technology Group FOCUS: focusing on mergers and acquisitions. Subsequent to CSFB, he also worked in the investment banking group Industrial Technology at Robertson Stephens. Peter graduated with a BA in Economics from the University of California, Berkeley. Asian Cross Border Transactions John Ippolito, Managing Director, joined Headwaters in 2010 from Axia Advisors, a middle market investment John Ippolito banking firm he co-founded in 2004 that focused on industrial technology markets. Managing Director He has over fifteen years experience advising private and public companies on M&A and capital formation, 781.273.6062 both domestic and internationally. Prior to Axia Advisors, he was head of M&A at H.C. Wainwright, a full jippolito@headwatersmb.com service investment banking firm that served technology, healthcare and industrial growth companies. Before H.C. Wainwright, he was Managing Director at C.W. Downer & Company, where he helped establish a FOCUS: cross-border sell-side practice. Before becoming an investment banker, he held senior management positions with several companies serving the factory automation marketplace. Mr. Ippolito earned a B.S. Industrial Technology Industrial Engineering degree with Highest Distinction from Purdue University, and an MBA from Harvard Process Automation Technology Business School. Sensors and Instrumentation 5
  • POWERTRAIN PRACTICE WHERE WE FOCUS International OEM’s and suppliers TIER 1 suppliers should have are starting to look at the US exposure to multiple clean market for technology acquisition. powertrain technologies. This Technology providers should means M&A beyond the core, and target exit now as new powertrain it might mean buying at pre- Batteries platforms are still developing . commercial stages. Digital controls Electric motors Fuel injection Sensors Vehicle intelligence Regeneration/Flywheel Super/Turbo charging Cylinder control Lightweighting Emissions Well capitalized TECHNOLOGY PROVIDERS seeking revenue TIER 2 suppliers should look should look to acquire actively at mergers to broaden established Tier 2 suppliers with capabilities, diversify customer comparable legacy products to base and strengthen financial jumpstart OEM activity positions, including foreign targets. 6
  • POWERTRAIN PRACTICE WHAT WE SEE Darker color represents current strength in the value chain Indicates possible strategic transactions CNG EQUIPMENT MANUFACTURERS AUTO OEMS BATTERY MANUFACTURES MARKET PROVEN EV MANUFACTURERS CNG SERVICES COMPANIES LARGE MULTI-INDUSTRY TECHNOLOGY INTEGRATORS POWERTRAIN EV COMPONENT SYSTEMS MANFUFACTURERS INTEGRATORS VEHICLE CHARGING INFRASTRUCTURE TIER 1 MANUFACTURERS BRIC ENGINEERING FIRMS SPECIALIZED ENGINEERING VALIDATED FIRMS POWERTRAIN STARTUPS 7
  • POWERTRAIN PRACTICE WHAT WE DO Investment Banking Mergers and Acquisitions Capital Acquisition • Stock/Asset sales • Private Equity/Venture Capital • Divestitures • PIPES • Buy-side engagements • Senior/Mezzanine Debt • Project finance Recapitalizations Cross Border Transactions • Debt restructuring • Joint Ventures • Stressed/Distressed situations • Licensing • Management buyouts Private Equity Family Office Capital HCP invests exclusively in Headwaters client Family Office Direct Investment Services (FODIS) is designed to provide companies and has the flexibility to play anywhere on business-owning families or Family Offices with access to Headwaters’ the balance sheet. With HCP’s limited partners, we’ve integrated business model, national network and market intelligence to built a major capacity to handle everything from enhance their deal-origination process, optimize investments and exits, complex distressed transactions to growth equity and strengthen oversight and monitoring of their private-company investments in strong, emerging or transitional investments. companies. We’re comfortable with virtually every As part of FODIS, we can oversee, manage and report on behalf of Family form of debt and equity, and we have restructuring Offices, and we can also serve as a syndicate agent when multiple Family experts onboard who can help you work through what Offices combine to provide equity capital to a segment-leading business. might have to happen at your company as together we process the difficulties of the last few years. 8
  • INDUSTRY OVERVIEW 9
  • INDUSTRY OVERVIEW THEMES • It’s all about the “Mash-up”. OEM’s that can combine and synchronize best of breed technologies will stay ahead in MPG performance and remain flexible against platform obsolescence. • OEM’s will begin to explore open source engineering, pushing development beyond the castle walls. • Customers will assume higher MPG’s as the norm, leaving non-participating manufacturers at a disadvantage, even in high performance categories • Powertrain suppliers will broaden geographic reach, acquiring smaller suppliers as well as new technologies. • Global M&A will focus on technology acquisition and supply chain efficiency. • BRIC M&A will continue to consolidate small parts suppliers, localizing supply chain and importing technology • HEV and diesel will be near term winners; EV will pick up beyond 2015 as next generation batteries enter commercial production and battery costs decrease 10
  • INDUSTRY OVERVIEW 2015 PROJECTIONS • Global auto sales CAGR will exceed 3%; US unit sales to decline below 12MM • Chinese auto companies enter western markets with multiple models • Hybrids to gain market share, nearing 7% penetration due to Plug-in introduction and lower battery costs • Electric vehicles enter the market in force, but “range anxiety” keeps unit sales below 100,000 in 2015 • EV batteries average 150 miles per cycle, and at half cost • Conventional IC fuel economy average to exceed 30 mpg through new engine design, efficient fuel management and vehicle weight reduction • Proprietary component makers drive M&A as powertrain platforms diversify and consolidate geographically • Natural gas approaches 2% penetration in US commercial truck sales • Independent EV companies consolidate to survive; major OEM’s dominate EV • Major OEM’s actively acquire venture stage technologies 11
  • INDUSTRY OVERVIEW TOP 25 AUTOS STRENGTHEN FINANCIALLY Average Revenue ($MM) Average Market Cap ($MM) 80,000 35,000 70,000 30,000 60,000 25,000 50,000 20,000 40,000 30,000 15,000 20,000 10,000 10,000 5,000 0 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Average EBITDA ($MM) Average Working Cap ($MM) 8,000 8,000 7,000 6,000 6,000 5,000 4,000 4,000 3,000 2,000 2,000 1,000 0 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Source: Cap IQ 12
  • INDUSTRY OVERVIEW US DEMAND WILL MODERATE Annual US Light Vehicle Sales (thousands of units)  15,000 2015 Headwaters Projections*  14,000  13,000  12,000  11,000  10,000  9,000 * Assumes 2012‐2013 US  GDP contraction of 0‐1%  8,000 Sources: Research and Innovative Technology Administration; Motor Intelligence 13
  • INDUSTRY OVERVIEW BUT CHINA WILL DRIVE GLOBAL SALES New Passenger Vehicles Sales (millions of units) 16 14 12 10 US Western Europe 8 China India 6 Brazil 4 2 0 2008 2009 2010 2011(p) Source: Scotiabank Group, Global Auto Report, 6/21/2011 14
  • INDUSTRY OVERVIEW THE US CUSTOMER SEEKS VALUE % of US Annual Family Income Spent on a New Vehicle vs. Average Gasoline PPG (2005 $) Car spend Fuel Price 60% $3.50 55% $3.00 50% $2.50 45% $2.00 40% $1.50 35% $1.00 30% $0.50 25% 20% $0.00 Source: US Department of Energy, via Ward’s Automotive Group 15
  • INDUSTRY OVERVIEW ENGINE SIZE DROPS US Light Vehicles Market Share by # of Cylinders 70% 60% 50% 40% 8 Cylinder 6 Cylinder 30% 4 Cylinder 20% 10% 0% Source: Environmental Protection Agency 16
  • INDUSTRY OVERVIEW ENGINE PERFORMANCE REFOCUSED ON MPG Average US Light Vehicle Horse Power per Cubic Inch Displacement vs. Average MPG 1.30 24.0 1.20 22.0 1.10 1.00 20.0 0.90 18.0 0.80 16.0 0.70 0.60 14.0 0.50 12.0 0.40 0.30 10.0 Source: Environmental Protection Agency; US DOE 17
  • INDUSTRY OVERVIEW PROPELLED BY TECHNOLOGY Estimated % MPG Improvement over 25 mpg Gasoline Equivalent 600% 500% Averaged Hybrid (1) 400% Averaged Clean Diesel (1) Toyota Prius (2) 300% Plug‐In Hybrid (3) All Electric (4) 200% Plug‐In Diesel Hybrid (5) Next Gen Electric (6) 100% 0% 1 Notes: 1 – Averaged mpg benefit over equivalent gasoline models (i.e. Camry vs. Camry hybrid); EPA data 2 – 2011 production model 3 – Average based upon Chevy Volt and Plug-In Prius evaluations 4 – Based upon official Nissan Leaf combined mpg rating 5 – Based upon Volvo V60 DHEV evaluations 6 – Estimate based on near market CODA, Tesla and BYD models 18
  • INDUSTRY OVERVIEW OEM PLAYERS -Plug-in HEV -Plug-in HEV -Plug-in HEV -Plug-in HEV -Clean Diesel -EV -EV -EV -EV -HEV -HEV -HEV -HEV -Clean Diesel -Clean Diesel CHEVY VOLT PRIUS CMAX E 300 BlueTEC -Clean Diesel -HEV -HEV -Clean diesel -Efficient Gas -EV -Plug-in HEV -Plug-in HEV -Plug-in HEV FIAT 500 INSIGHT SONATA JETTA TDI -Efficient Gas -Clean Diesel -HEV -HEV -Clean Diesel -HEV -Clean Diesel -EV -EV -EV MAZDA3 SKYACTIV i3 VOLVO V60 MiEV -Clean Diesel -EV -EV -Efficient Gas -HEV -HEV -HEV -HEV (2013) -Plug-in HEV -Plug-in HEV RANGE_e e6 LEAF IMPREZA -Plug-in HEV -EV -EV -EV -Clean Diesel KARMA MODEL S CODA REVA -HEV -Efficient Gas -Clean Diesel -EV -EV -HEV -HEV -HEV -Plug-in HEV -EV -Plug-in HEV FLUENCE CAYENNE C-ZERO/iON BENNI MINI 19
  • INDUSTRY OVERVIEW PARTNERING NEW TECHNOLOGIES “Intel Inside” or “Sorry, not invented here”? 20
  • INDUSTRY OVERVIEW DRIVING TRANSACTIONS 2011 KPMG survey cites technology as the most likely reason for M&A 21
  • INDUSTRY OVERVIEW WHY TECHNOLOGY M&A? Innovation will trump brand • Balance sheet strength has returned to OEM’s • Global long term industry growth certainty • Most OEM’s and Tier 1 players are geographically diversified to benefit from overall growth • Product innovation occurring more rapidly and accelerating • Very decentralized technology landscape across multiple powertrain platforms (IC, Diesel, HEV, EV, PHEV), no one has a lock • Proprietary technology crucial for differentiation • Low cost Chinese manufacturers catching up in design and reliability – looking to western export markets • Chinese and Indian OEM’s looking actively at western technology acquisition for mpg improvement , cost reduction and competitive advantage • Innovation driving customer acceptance – TESLA, FISKER, CODA, BYD OEM and Tier 1 manufacturers will need to actively acquire technologies across powertrain platforms to differentiate, maintain relevance and avoid being shut out of the next performance benchmark 22
  • INDUSTRY OVERVIEW INDUSTRY METRICS Powertrain Valuation and Liquidity (Average, 65 companies) 2.00 1.75 1.50 1.25 Revenue Multiple 1.00 Current Ratio 0.75 0.50 0.25 0.00 2007 2008 2009 2010 Jul‐11 Source: Capital IQ 23
  • INDUSTRY OVERVIEW TRANSACTIONS Powertrain Middle-Market Transactions 2007-2011 (Average values, $MM) $1,208  $1,416  $215  Mergers and $116  $127  $114  Acquisitions Private Placement Transaction Value Target EBITDA Target Revenue Implied EBITDA Multiple: 12.09 Implied Revenue Multiple: 1.16 Source: Capital IQ 24
  • INDUSTRY OVERVIEW TRANSACTION FOCUS GKN acquires Getrag’s Driveline Products Business Transaction Summary: On July 27, 2011, GKN announced its agreement to acquire the all-wheel drive (AWD) components businesses of Getrag KG, a privately held German company. Getrag Driveline Products engages in the supply of geared driveline products, and is currently targeting the future supply of transmission and axle products for hybrid and electric vehicle drivetrains. As part of the transaction, GKN will be acquiring an exclusive license to Getrag’s electric drivetrain technology for use in electric and certain hybrid vehicles, primarily for Europe and the Americas. Transaction Deal Values: The acquisition cost will be £295mm (US$481mm). Getrag Driveline Products has an approximate enterprise value of £280mm (US$456mm). For the last audited year ended 31 December 2010, Getrag Driveline Products achieved consolidated sales of approximately £380mm (US$618mm), EBITDA of £50mm (US$81mm), profit before taxation of £25mm (US$41mm) and gross assets were £250mm (US$408mm). Strategy: Global production of AWD vehicles is forecasted to grow at above-market rates, reflecting the overall increase in demand for crossover vehicles and compact SUVs. The acquisition of Getrag Driveline Products will also allow GKN to take advantage of the increasing demand for electric and hybrid vehicles as those markets develop. Source: Center for Automotive Research 25
  • HEV/EV TECHNOLOGY 26
  • HEV/EV TECHNOLOGY THEMES • Plug-in Diesel / Gas technology will set near term fuel efficiency at 70+mpg while maintaining performance • Increased consolidation of hybrid powertrain component providers will increase output capacity and reduce pricing • Abundant battery supply will further reduce HEV pricing • Most active M&A area – vertical integration of EV’s “battery – motors – controls” • May see a M&A land grab by auto OEMS’s for the most promising battery technology • EV’s will not eclipse HEV gross sales for decades, but will compete for the commuter segment • “Outside the home” charging infrastructure will be a long term bottleneck – How do you make money in charging? • HEV technology will dominate western car markets by 2025 with majority new light vehicle sales 27
  • HEV/EV TECHNOLOGY HYBRID SALES US HEV Penetration Rate(light vehicles, units) 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% Headwaters 2015 Projections 3.0% 2.0% 1.0% 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: US Department of Energy, Alternative Fuels and Advanced Vehicle Center 28
  • HEV/EV TECHNOLOGY EV SALES US Electric Vehicle Sales Projections (units)  160,000 140,000  136,000   140,000 116,000   120,000  100,000 95,000  77,000   80,000 70,000   60,000 45,000  CAR Estimate  40,000 27,000  25,000  Headwaters Estimate  20,000 15,000   ‐ 2011 2012 2013 2014 2015 Source: Center for Automotive Research 29
  • HEV/EV TECHNOLOGY MARKET EXPECTING FAST EV GROWTH Revenue (LTM) Multiple 30.00x 25.13 25.00x 20.9 19.59 19.8 20.00x 18.95 18.25 TESLA 15.00x FORD 10.00x 5.00x 1.2 1.08 1.12 1.13 1.06 0.97 0.00x Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Aug‐11 Source: Capital IQ 30
  • HEV/EV TECHNOLOGY BUT WHO WILL REAP THE REWARDS? 2012 FORD FOCUS ELECTRIC Range: ~100 miles Charge Time; ~4 hrs. @ 220v Post Rebate Cost Estimate: ~$25,000 2012 TESLA S Range: ~160 miles Charge Time; ~8 hrs.@ 220v Post Rebate Cost Estimate: ~$50,000 31
  • HEV/EV TECHNOLOGY TRANSACTIONS Private Placements 2005-2011 (Average investment round size, $MM) 60 40 31 24 Battery / Components Powertrain / Transmission Complete vehicle Total average development Source: Capital IQ 32
  • BATTERIES 33
  • BATTERIES THEMES • Lithium ion battery manufacturing capacity overbuilt for demand in the near term • Several early advanced battery manufactures entrants will fail • Diversified providers will consolidate technology platforms • China will become the dominant auto battery manufacturing hub through scale and cost advantage • Technologies will advance rapidly and auto makers will shift providers quickly • Customer concentration will be a big issue for most manufacturers • Strong early stage M&A likely as technology is consolidated by battery leaders • Optimal battery chemistry and performance will be reached within five years and the industry will stabilize as EV demand picks up 34
  • BATTERIES STATIONARY BATTERY METRICS Valuation and Liquidity (Averages, 16 companies) 2.50 2.00 1.50 Revenue Multiple 1.00 Current Ratio 0.50 0.00 2007 2008 2009 2010 Jul‐11 Source: Capital IQ 35
  • BATTERIES LITHIUM CHEMISTRY METRICS Revenue Multiple (LTM) 40.00x Valence Technology 35.00x Advanced Battery Technologies 30.00x A123 Systems 25.00x Ener1 20.00x 15.00x 10.00x 5.00x 0.00x Source: Capital IQ 36
  • BATTERIES LITHIUM CHEMISTRY METRICS Revenues (LTM by quarter) 120.00mm 100.00mm A123 Systems 80.00mm Ener1 60.00mm Advanced Battery Technologies 40.00mm Valence Technology 20.00mm 0.00 Source: Capital IQ 37
  • BATTERIES LITHIUM CHEMISTRY METRICS Cash and equivalents ($, LTM average) 500.00mm 450.00mm A123 Systems 400.00mm Ener1 350.00mm Advanced Battery 300.00mm Technologies 250.00mm Valence Technology 200.00mm 150.00mm 100.00mm 50.00mm 0.00 Source: Capital IQ 38
  • BATTERIES VERTICAL INTEGRATION STORIES Founded in 2003 and backed by Elon Musk and high profile venture funds, TESLA pioneered the modern EV by taking an integrated approach to battery and vehicle development based upon the 18650 Li-Ion cell. Strong vehicle design, deep pockets and excellent public relations kept the start-up in a positive light through several years of battery development until the Roadster debut in 2008. Range capabilities, durability and road testing validated the battery approach, leading to interest in its battery system. TESLA has reported deals with TOYOTA, DAIMLER and FREIGHTLINER to utilize battery and powertrain systems for a variety of vehicle applications ranging from mini cars to fleet vans. What’s next? TESLA’s public valuation puts it in a strong position to acquire other battery platforms and technologies to diversify and strengthen its position. Like TESLA, CODA AUTOMOTIVE has integrated battery and vehicle development from day one, although for CODA, the battery is king. The company has developed a 120 mile range flat Lithium Iron Phosphate battery that will be initially manufactured by LIO Energy Systems, a joint venture with Lishen Power Battery. Heavily reliant on supplier partners to remain capital efficient, CODA will sell automobiles in California by the end of 2011. The more interesting strategic initiative is its recently announced partnership with Chinese auto manufacturer Great Wall Motors. Great Wall will reportedly use the CODA battery system and other components for a range of vehicles for export globally. Just a technology supplier, or could CODA become the US nameplate for this fast growing Chinese auto maker? Think before you leap… Lithium battery pioneer ENER1 jumped into the vertical integration game by investing heavily in previously bankrupt THINK GLOBAL, the Norwegian EV manufacturer. Production delays, poor sales and accounting issues plagued THINK, which again declared bankruptcy in June 2011. ENER1, which touts customers like Chinese Tier 1 auto supplier Wanxiang Group and car manufacturer Volvo, has endured mounting losses from operations, capital investments and acquisitions. The company is currently restating financials and is under threat from NASDAQ delisting. In a heated duel with competitor Ener1, lithium Ion battery maker A123 SYSTEMS won the right to supply the battery system for the Fisker Karma high performance plug-in hybrid. Whether a quid pro quo was involved is uncertain, but A123 also participated in a Fisker investment round in the amount of $23 million. Not withstanding the equity position in Fisker, A123 is the prime battery supplier for several GM programs and Chinese auto company Shanghai Auto, indicating that product quality and production capacity drove the Fisker decision. 39
  • BATTERIES NANOTECHNOLOGY WILL DELIVER Energy density may triple; Power density may increase 10x; Costs cut in half Metals: “Aluminum-Celmet increases the amount of positive active material per unit area. Sumitomo Electric indicates that in the case of automotive onboard battery packs, such replacement will increase battery capacity 1.5 to 3 times. Alternatively, with no change in capacity, battery volume can be reduced by one-third to two-thirds.” “Envia has developed a cathode material based on inexpensive metals (including manganese) that stores more energy per unit of weight than anything else in use today – twice the energy density of lithium cobalt oxide. Because of the material’s stability at higher voltages, it is able to access high capacities with long cycle life. The combination of high capacity and low cost metals helps to significantly lower the price per kilowatt-hour (kWh) of energy storage. By putting more energy in each battery, the number of batteries required decreases – by 50% in Envia’s case, dramatically reducing the overall cost of the application..” Silicon: “Nexeon has patented a unique way of structuring silicon so that it delivers extended cycle life and significantly increases battery capacity. In contrast to carbon, Nexeon’s silicon anode materials have a much higher capacity for lithium and as a result are capable of almost ten times the gravimetre capacity per gram (mAh/g).” Material neutral: “Xerion Advanced Battery is exploring a novel method of using nanotechnology to increase ion transport and energy extraction to produce a new electrode architecture called StructurePore. This architecture is an electrode structure on the sub-micron scale that consists of an open-celled, porous metallic lattice conformably coated with the active electrode material. The StructurePore architecture has been demonstrated with prototype batteries using both Li-ion and NiMH chemistries. “ Source: company websites 40
  • BATTERIES TRANSACTIONS Select Middle-Market Transactions 2007-2011 (Average values, $MM) $233  $130  Mergers and $42  Acquisitions $18  $15  Private Placement $5  Transaction Value Target EBITDA Target Revenue Implied EBITDA Multiple: 10.06 Implied Revenue Multiple: 1.18 Source: Capital IQ 41
  • NATURAL GAS VEHICLES 42
  • NATURAL GAS VEHICLES THEMES • CNG (compressed natural gas) growing rapidly in India as third major fuel type for vehicles with a 5 year 26% CAGR and is mandated for New Delhi’s public transit buses • Pakistan, Iran, Argentina and Brazil are the largest users of CNG for vehicles, although Brazil’s growth has stalled in favor of ethanol based fuels • NG is a preferred alternative fuel for heavy trucks because of the economic cost benefit vs hybrid technology or electric technology • Major fleet operators including United Parcel Service have deployed hundreds of CNG vehicles for local routes in the US market • LNG (liquefied natural gas) is a potential substitute for diesel given 60% energy density ratio and lower price. However, given infrastructure requirements, cost-benefit can be challenging. 43
  • NATURAL GAS VEHICLES TRENDS Total NGV Sold (# of cumulative units) 8,000,000 7,000,000 6,000,000 5,000,000 ASIA‐PACIFIC EUROPE 4,000,000 NORTH AMERICA LATIN AMERICA 3,000,000 AFRICA 2,000,000 1,000,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: International Association for Natural Gas Vehicles 44
  • NATURAL GAS VEHICLES TRANSACTION FOCUS FAB Industries and Enviromech Industries merge to form Agility Fuel Systems. Summary: On January 6, 2011, FAB Industries and Enviromech Industries merged to form Agility Fuel Systems, Inc. Both US companies are leading providers of alternative fuel systems for the transportation industry. Together, Agility manufactures and markets fuel systems, including compressed industrial gas systems, for heavy duty trucks, buses, and specialty vehicles. Transaction: Cleantech PE firm Element Partners provided ~$22 million to facilitate the transaction and provide growth capital for the combined entity. On a combined basis, Agility is thought to have approximately $50 million in annual sales. Valuation for the transaction was not disclosed. Strategy: Fleet customers looking for scale implementations require advanced system engineering capabilities, installation expertise, service support, equipment supply, fueling infrastructure, contingency planning and geographic coverage. By combining, the two entities could solidify their US market leadership position through scale and capability. End Game: Given Element’s participation, Agility potentially sets up well for a strategic acquisition by a larger CNG player looking to vertically integrate: Westport (heavy duty engines) Fuel Systems Solutions (machinery, autos, stationary) Clean Energy Fuels (NG fuel supplier) Source: Capital IQ 45
  • NATURAL GAS VEHICLES TRANSACTIONS Select Middle-Market Transactions 2007-2011 (Average values, $MM) $99  $43  $4  Transaction Value Target EBITDA Target Revenue Implied EBITDA Multiple: 11.06 Implied Revenue Multiple: 2.38 Source: Capital IQ 46
  • CHINA 47
  • CHINA THEMES Government Policy: 2009 Auto Industry Revitalization Plan - Encourage manufacturer and supplier consolidation - Focus on unit output and demand - Acquisition of world-class technologies Chinese Automotive Transactions - Subsidize “green” technology - Establish brand equity for domestic producers Accelerating M&A - There have been 262 M&A transactions between 2007-2011 in the Chinese automotive industry compared to 84 transactions from 2002-2006 - Nearly 185 of the 264 M&A transactions from 2007-2011 were auto part and equipment companies, signaling very active supply chain consolidation - Outbound cross-border deals to expand – Geeley acquires Volvo 182 Other Chinese Consumers Prefer Foreign Nameplates Auto - Quality, design and brand recognition more important than price for many Manufacturers - Brand sales, June 2011: Europe 22% Auto Parts & Equipment US 20% Japan 18% China 40% 58 54 Tier 2,3 Penetration 16 - Ford, in its Changan joint venture is putting a much greater emphasis on Tier 2 and 26 10 3 cities such as Chengdu, Sichuan, Suzhou and Jiansu, to capture the growth and lack of automotive depth in these central growing locations 2002-2006 2007-2011 - Some tier 2 and 3 sized cities with over a million people don’t yet have Ford dealerships Source: Capital IQ Source: Detnews.com: Ford ‘close’ to upping stake in China venture: Aug 10 48
  • CHINA ON HYBRID TECHNOLOGY Chinese Execs pessimistic in near term; some OEM’s see opportunity Honda will likely start producing electric-gasoline Will Hybrid purchasing accelerate over the next 24  hybrid cars in China in "two to three years" if its sales months?  push succeeds, said Seiji Kuraishi, chief of Hondas China operations. Honda plans to launch five hybrid models next year: the Insight, the CR-Z, a hybrid 80% version of the Fit, a significantly redesigned hybrid version of the Civic and a hybrid model for Hondas 70% upper-scale brand Acura. All are small cars. The Japanese auto maker is determined to make 60% hybrid technology popular in China, Mr. Kuraishi said. Current green-car technology efforts in China are 50% largely focused on electric cars rather than hybrids, which use both electricity and gasoline 40% Yes The push comes as auto makers brace for stringent No new Chinese fuel-economy standards expected to 30% be phased in over the coming years. Beijing has yet to detail the requirements. But Mr. Kuraishi said the 20% company expects they will give its hybrids—and its Honda and Acura brand names—more appeal. "Its a big opportunity for us," Mr. Kuraishi said, citing the 10% boost Honda and other Japanese auto makers received from tougher new fuel-efficiency standards 0% in the U.S. in decades past. Global China Source: Deloitte; Driving for Success: A review of outbound Automotive Source: WSJ Online; Honda Plans Push for Hybrids in M&A from China; August 2010 China; 9/15/11 49
  • CHINA COMPANY FOCUS BYD Company is expected to deliver an electric car to the US market in Q2 of 2012. The e6, is an all- electric sedan originally projected to leapfrog other electric vehicles in the market with its combination of range, pricing, and style. BYD took advantage of the available subsidies and resources provided by the Chinese government to develop battery and EV drivetrain technology. The e6, is expected to get 140-200 miles per charge with a 120v charge time under 6 hours. The car is priced very reasonably at roughly $35,000 after incentives, which should generate sales given its purported capabilities. To support the company’s ambitious growth plans, BYD raised ~$230 million from Warren Buffet’s MidAmerican Energy Holdings Co., a Berkshire Hathaway company. Along the way however, BYD has seen sales growth in China deteriorate, and significant loss of profitability in 2011. With competition heating up in the global EV market, the once apparent advantage for BYD as a price competitive exporter are in question. Also, reports have emerged that the e6 may not be as range capable as originally touted, and that the quality and finishes of the vehicle may not resonate with US consumers. Brand awareness and distribution are also open questions. BYD is currently talking to potential US automotive dealers hoping to secure 20 in the first year. The Company expects to ship its first vehicles to the US in mid-2012, almost 2 years behind schedule. All eyes will be on e6 sales, both as a barometer of EV demand, and more importantly whether Chinese manufacturers will be able to establish a beach head in the brand focused US market. 50
  • CHINA TRANSACTIONS Announced Transaction Value Date Target Type ($USDmm) Buyers Sellers Business Description 07/18/2011 Suzhou Tysan Precision M&A 24.04 Cheung Who Tech Ltd., Auto Tysan Suzhou Tysan Precision Engineering Co., Ltd., Engineering Co., Ltd. Element Company, Ltd. Corporation Pte., manufactures and markets seat recliners and other Ltd. auto components. 06/02/2011 China Avic Avionics Private Placement 394.47 AviChina Industry & N/A China Avic Avionics Equipment Co., Ltd. engages in Equipment Co., Ltd. Technology Co. Ltd.; Aviation the research and manufacture of small displacement Industry Corporation of China cars. 06/01/2011 Ningbo Huaxiang Buyback 30.91 N/A N/A Ningbo Huaxiang Electronic Co., Ltd. engages in the Electronic Co. design, development, production, and sale of auto parts. 05/27/2011 Zhejiang Century Huatong Public Offering 160.55 N/A N/A Zhejiang Century Huatong Automotive Part Co., Ltd Automotive Part Co., Ltd. manufactures and supplies auto parts. 05/26/2011 Chaowei Power Holdings Buyback N/A N/A N/A Chaowei Power Holdings Limited principally engages Ltd. in the production of motive battery products for electrically powered vehicles in China. 05/05/2011 BYD Company Ltd. Public Offering 219.91 N/A N/A BYD Company Limited engages in the research, development, manufacture, and sale of rechargeable batteries and auto related products. 04/15/2011 Shenyang Brilliance Jinbei M&A 45.90 Shenyang XinJinBei Dalian Huaxia Shenyang Brilliance Jinbei Automobile Co., Ltd. Automobile Co., Ltd. Investment and Development Northern manufactures automobiles in China. Co., Ltd. Investment Company Ltd. 03/28/2011 Dongfeng Yulon Motor Co., Private Placement 182.76 Yulon Motor Co. Ltd. N/A Luxgen Motor Co. Ltd. manufactures and markets Ltd. passenger cars that include sport-utility vehicles and multi-purpose vehicles. 11/10/2010 Chongqing Changan Private Placement 532.03 China Changan Automobile N/A Chongqing Changan Automobile Company Ltd., Automobile Co., Ltd. Group Company Limited together with its subsidiaries, develops, manufactures, and sells automobiles, engines, and related components. 08/21/2010 Zhejiang Wanfeng Auto Private Placement 122.23 Wanfeng Auto Holding Group N/A Zhejiang Wanfeng Auto Wheel Co., Ltd. engages in the Wheel Co., Ltd Co., Ltd. manufacture and supply of aluminum alloy wheels for automobiles. Source: Capital IQ 51
  • INDIA 52
  • INDIA THEMES Consumer demand shifting emphasis from price to innovation and design Rising demand can be attributed to an increase in discretionary income, availability of car loans, lower interest rates and promotional prices - With only 9% households owning vehicles, the new capital availability will accelerate market growth - First time buyers are upgrading to premium compact cars, the fastest growing segment, increasing from 11% to 22% of the overall market share Imports are challenging the Maruti, Nyundaia and Tata, which own 73% of the market - Fiat Palio Stile Entry compact - Toyota ETIOS Entry sedan - Toyota Liva Premium compact - Honda Brio Premium compact - Volkswagen Vento Premium sedan - Nissan Teana Premium sedan Mergers and acquisitions are dominated by small supplier consolidation and supply chain integration. That will continue through the next five years and beyond. The Indian consumer is value driven, so brand premium is far less important than “bang for the buck”. Electric infrastructure cannot support EV’s, even on a small scale. Hybrids are too costly. Efficient IC engines will dominate the market, with premium paid for luxury rather than power or mpg. 53
  • INDIA THE PLAYERS Domestic Manufacturers Market Share Company Market Cap Revenue EBITDA EBITDA Maruti Hyundai Tata Motors Mahindra ($MM) ($MM) ($MM) MULTIPLE Toyota Honda Others Tata Motors 13,076.0 27,921.4 4,099.1 5.94x Mahindra 9,544.3 8,395.8 1,372.9 9.6x 15.0% 17.5% Bajaj Auto 9,342.1 3,842.5 1,040.1 8.9x 2.0% 3.0% 4.4% Hero Honda 8,233.1 4,675.3 594.5 13.8x 7.0% 7.0% Maruti 7,717.0 8,347.3 797.8 8.9x Suzuki 14.0% 8.5% Bajaj Auto 9,342.1 3,842.5 1,040.1 8.9x Ashok 1,565.6 2,554.5 279.6 7.5x 12.9% Leyland 14.0% TVS Motors 547.3 1,045.6 48.9 14.6x 14.1% Ford plans to open two India-based manufacturing plants by 2014, 45.0% an investment of $1bn 35.6% - The first manufacturing plant will have production capacity of 240,000 units annually - The engine plant will be able to produce 270,000 engines annually Source: Deutsche Bank: Maruti Suzuki Ltd. (July, 2011) Unit Volume Revenue 54
  • INDIA TRENDS Vehicle Segment Market Share Entry compact Premium Compact Entry Sedan Premium Sedan & above 21.0% 20.7% 19.5% 23.8% 13.6% 13.6% 10.9% 14.2% 10.6% 15.6% 21.0% 21.5% 54.8% 49.2% 44.8% 45.4% FY08 FY09 FY10 FY11E Deutsche Bank: Maruti Suzuki Ltd. (July, 2011) 55
  • INDIA CASE STUDY Mahindra Acquires Control of REVA Electric Transaction Summary: Mahindra & Mahindra (M&M) acquired a 55.2% stake in REVA Electric Vehicle Co. on May 26, 2010 by a combination of equity purchase from equity sponsors as well as a $10mm cash infusion. M&M’s acquisition of REVA was strategically implemented to take advantage of REVA’s innovation and R&D in the EV market. M&M plans on using its large distribution network to increase economies of scale to narrow the gap in pricing between REVA’s EV cars verses petrol based cars. REVA’s NXR model is currently priced at $15,000 for the lead acid battery, and $21,000 for the lithium battery. Through leasing of batteries consumers can save over $1,000 off the price of the vehicle. Indian state governments are working to further reduce the pricing through subsidizing the EV market as a green initiative. The Delhi government in particular is promoting EV vehicles through its tax rebates of up to 29.5% off the cost (15% subsidy on the base price of the REVA, a 12.5% VAT exemption, and road tax and registration exemption). REVA has been able to increase its vehicles range per charge through the development of the NXR, (100 miles per charge) doubling the range per charge of the G-Wiz, REVA’s first car produced. Realizing the rapid innovation and newfound affordability of pricing, REVA is positioning itself for a much larger demand by building a manufacturing facility with the capacity of producing 30,000 cars annually, nearly ten times the number of REVA vehicles currently on the road. Mahindra is targeting near term domestic sales of 2,500 units, and a considerable expansion of its REVA exports into the European market. Source: FINPRO Electric Vehicle India: (2011) 56
  • INDIA TRANSACTIONS Announced Transaction Value Date Target Type ($USDmm) Buyers Sellers Business Description [Target] 03/15/2011 Rasandik Auto Components Pvt M&A 1.98 N/A Rasandik Rasandik Auto Components manufactures and Ltd. Engineering supplies automotive components. Industries India Ltd. 03/17/2011 Hindustan Composites Ltd., Jalna M&A 1.29 Spitmaan Group Hindustan Hindustan Composites engages in the development, Unit Composites Ltd. manufacture, and marketing of asbestos industrial products and friction materials 12/16/2010 Hero Honda Motors Ltd. M&A 843.52 Hero Investments Honda Motor Co., Hero Honda Motors Limited manufactures and sells (BSE:500182) Private Limited Ltd. motorcycles in India. 10/29/2010 Steel Strips Wheels Ltd. Private 9.77 Sumitomo Metal N/A Steel Strips Wheels Limited engages in the Placement Industries Ltd. manufacture and marketing of steel wheels for passenger cars, multi utility vehicles, tractors, trucks, and two and three wheelers. 06/28/2010 Synergies Castings Limited M&A 2.5 Superior Industries N/A Synergies Castings Limited engages in the International, Inc. manufacture of alloy wheels and other precision aluminium castings. 06/26/2010 Lumax Auto Technologies Ltd. Private 5.13 Sheela Finance Private N/A Lumax Auto Technologies Limited manufactures and Placement Limited; Orange sells auto components primarily in India. Mauritius Investments Ltd. 06/05/2010 Amtek Auto Ltd. Private 22.85 N/A N/A Amtek Auto Limited engages in the manufacture, Placement assembly, and sale of auto components. 05/26/2010 Mahindra REVA Electric Vehicle Co M&A N/A Mahindra & Mahindra Draper Fisher Mahindra REVA Electric Vehicle Co Ltd. manufactures Ltd. Ltd. Jurvetson; Global and sells electric vehicles. Environment Fund 01/25/2010 Exedy India Limited M&A 4.3 Exedy Corp. N/A Exedy India Ltd. manufactures and sells various auto clutch products and components in India. Source: Capital IQ 57
  • BRAZIL 58
  • BRAZIL THEMES • Competition has become intense in the Brazilian market as most international OEMs have developed a presence. • Consumer discretionary income remains the key driver for market growth and producers are looking for ways to hit lower price points while maintaining margins. • Auto financing has expanded since 2000, constituting 35% of outstanding consumer credit. Average car loan interest rates range between 30-40%, due to higher default rates. • Tax burden, which can amount to up to 30% of the value of the vehicle provides additional resistance in the market, which has grown 4-8% annually over the last two decades. • The Brazilian supplier base is transitioning from commodity to engineered products, although labor costs tend to be 25% higher than India and China. • Flex fuel technology in particular could be a strong export as multinationals seek to consolidate powertrain platforms over diverse markets. Source: Business Week; Brazil Credit Growth Slows, Auto Financing Rates Jump; 1/26/11 59
  • BRAZIL TRENDS Growth Factors • The Brazilian automotive industry is expected to Fleet Average Age (Years, 2010) grow 8% annually through 2016 which is a 50% 14 increase from 2010 levels 12 • Growth is largely attributed to a low concentration of cars per inhabitant and the a 10 retiring vehicle fleet 8 6 Light Vehicles per 1,000 Inhabitants 4 1,400 2 1,200 0 1,000 800 600 • Volkswagen, Toyota, and Honda have announced expanding their manufacturing capacity to 400 capture a greater portion of the demand 200 • Credit is considered the biggest risk to demand; however auto loan duration remains healthy at 0 3.5 years US Japan W New Russia Brazil China India Europe EU Source: Morgan Stanley: FIAT The Truth About Brazil (July, 2011) 60
  • BRAZIL THE PLAYERS International OEMS dominate 100% 90% And the Chinese are Coming… "Brazil is increasingly becoming one of the worlds most 80% Other important markets and no company wants to be left out," Chery Automobile President Yin Tongyue said while laying a Honda cornerstone of the factory. "This is our biggest investment 70% outside China and will be the base of exports for all of South Toyota America." 60% Hyundai About 85% of the companys production will be directed at 50% Renault Brazil, where Chery expects to have a 1% share of the market of more than 3.5 million vehicles sold a year. The remaining PSA 15% will be exported to other Latin American countries. 40% Ford The Jacarei plant will lead to the arrival of about 20 Chinese parts suppliers, as well as local producers to manufacture 30% GM compact cars. The factory represents a $400 million investment by Chery and Chinas Development Bank. Chery 20% Volkswagen currently has 12 factories that only assemble cars from imported parts. FIAT 10% - Wall Street Journal Online, Paulo Winterstein, July 2011 0% 2000 2010 Source: Morgan Stanley: FIAT The Truth About Brazil (July, 2011); 61
  • BRAZIL EV POTENTIAL Not Charged Up Ethanol - As the second leading ethanol producer in the world, flex fuel is a much 2010 Vehicle Registrations by Fuel more affordable solution in Brazil than it is in other countries Diesel 5% High Taxes Petrol - Brazil’s high import taxes makes HEV or EV penetration very 8% challenging Electricity Cost - Electricity cost in Rio and Sao Paulo are $0.18 and $0.19 per kWh respectively compared to the US average of $0.09 per kWh Flex Infrastructure Fuel - Urban charging requirements and the power grid could not handle auto 87% electrification Source: ANFAVEA, 2010 62
  • BRAZIL TRANSACTIONS Announced Transaction Value Date Target Type ($USDmm) Buyers Sellers Business Description [Target] 04/04/2011 Mahle Metal Leve S.A. Public 172.21 NTN Corp. (TSE:6472) Mahle GmbH MAHLE Metal Leve S.A. engages in the (BOVESPA:LEVE3) Offering development and production of components and systems for automobiles worldwide. 01/12/2011 Flexitech do Brazil M&A 9.7 Flexitech Europe SAS Trelleborg Auto Flexitech do Brazil manufactures brake hoses Brasil Ltda. for light vehicles. 09/27/2010 WVR Rolamentos LTDA M&A N/A Dayco Products, LLC N/A WVR Rolamentos LTDA manufactures automotive tensioners and pulleys. 04/30/2010 Autometal S/A. Public 263.92 N/A N/A Autometal S.A. and its subsidiaries engage in (BOVESPA:AUTM3) Offering the design, manufacture, and sale of components and sub-assemblies for the automotive market. 03/01/2010 MMC Automotores do M&A N/A BTG Pactual Gama N/A MMC Automotores do Brasil S/A manufactures, Brasil S/A Participações assembles, and distributes Mitsubishi brand vehicles in Brazil. 08/04/2009 Arvin Innovation, Inc., M&A 180.0 Iochpe-Maxion S.A. Arvin Innovation, Steel Wheel Business manufactures Steel Wheel Business (BOVESPA:MYPK3) Inc. automobile steel wheels and is located in Brazil. 01/09/2009 Sawem Industrial Ltda., M&A 3.57 Brembo Do Brasil Ltda. Sawem Industrial Sawem Industrial Ltda. Engages in the Business Manufacturing Ltda. manufacturing of automobile parts and Iron Flywheel equipment. 11/28/2008 Vanzin Industrial Auto M&A N/A Tuper S/A N/A Vanzin Industrial Auto Peças Ltda. Peças Ltda. Manufactures and markets auto components and parts. 03/12/2008 Powertrain do Brasil - M&A 112.08 Fiat Powertrain Old Carco LLC Tritec Motors Ltda. Manufactures gasoline Trotec Motors Ltda. Technologies S.p.A. engines in Brazil. Source: CapitalIQ 63
  • ABOUT HEADWATERS 64
  • ABOUT HEADWATERS HEADWATERS MB: MARKET PRESENCE Independently owned, multi-disciplinary growth advisory and investment banking firm - Leading firm for serving the private wealth industry in North America, working with entrepreneurs and business owning families Over $15 billion of middle market deals and over $75 billion of deal experience 65 full time senior professionals with national office footprint in the United States - Denver, Boise, Boston, Burlington, Chicago, Cincinnati, New York, Orange County, Pittsburgh, San Francisco, Washington D.C. & West Palm Beach International track record; global reach - Significant revenue has been generated from cross border transactions - Winner of “Cross Border Deal of the Year” - Advisory partners in 30 countries Formed via merger of Headwaters (founded 2001) and Source Capital (founded 1982). 65
  • ABOUT HEADWATERS FULL SERVICE INVESTMENT BANKING Sell-side advisory Bank debt placement Buy-side advisory Debt syndication services Investment Banking Management buyouts Partnering & licensing Fairness opinions Early stage / venture funding Products Specialty Senior debt $25mm+ Project finance Mezzanine debt $10mm+ Merchant banking Private equity $10mm+ Private market making Public market co-manager Minority shareholder liquidity Family office capital Strategic alternatives review Equity syndication services Advisory Services Valuations Capital market alternatives Institutional vs. Family Office Domestic vs. Global Capital providers 66
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