Looking ahead, it will be interesting to see how the two mega deals in the non-tire rubber sector turn out over the long run.
First you had Continental A.G.'s ContiTech business buying Veyance Technologies Inc., the Goodyear Engineered Products business. That deal has ContiTech paying $1.91 billion for Veyance, which posted sales last year of roughly $2 billion.
Now you have private equity firm Blackstone Group L.P.—reportedly the world's largest buyout firm—shelling out $5.4 billion to buy Gates Corp., the No. 7 non-tire rubber product maker in the world, posting sales last year of nearly $3 billion.
With the first deal, ContiTech is a major player in the industry, itself the top non-tire rubber product firm based on 2012 sales. It lacked, however, a major presence in North America and wanted to boost its non-automotive revenue, two areas the Veyance purchase will help remedy in a hurry. Its early indications are that it wants to continue on its growth curve, and shuttering factories isn't in its plans.
For Gates, however, it's hard to tell what plans Blackstone has in store for it. The current and soon to be former owners of Gates—assuming the deal goes through—were Onex Corp. and Canada Pension Plan Investment Board. Their statements when the Blackstone deal was announced focused primarily on how much they had made from the Gates investment.
Blackstone, as a private equity buyer, will have much different intentions than a strategic purchaser such as ContiTech. It will look to pare down its acquisition debt, push for continued growth of the business and get it in shape where it can re-sell Gates somewhere down the road for a profit.
Its course toward this goal may include making cuts where possible as well as adding allied businesses to give it an even more attractive asset to sell.
Gates already has undergone many changes over the past several years. It changed its operating focus around the time of its centennial, only to scrap the game plan shortly after. A number of high-level executives also were shown the door.
So it's probably a safe bet that more change will be forthcoming once the ink dries on this latest mega-deal.