From seller to buyer: Is Trelleborg positioning for M&A growth?

TRELLEBORG, Sweden—Trelleborg A.B. is poised to divest its Trelleborg Wheels Systems business to Yokohama Rubber Co. Ltd. in a cash and debt-free deal valued at $2.3 billion.

So what does the move mean for the Trelleborg Group in the months and years ahead? Well, the company has definite plans for growth and hasn't been shy about articulating its goals. Moreover, it's taken some steps already this year to position itself for more rapid, aggressive M&A growth.

And Trelleborg has set the growth bar high because the company is coming off what CEO Peter Nilsson called "the best year in the history of Trelleborg."

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Trelleborg ranked as the No. 9 largest manufacturer globally of non-tire rubber products, with $2.61 billion in 2020 sales, according to Rubber News' latest rankings data.

At the end of last year, the Swedish rubber products maker signaled its intention to grow through M&A. In addition to growing its global footprint, Trelleborg said M&A would help with "speedboat accelerating" growth in certain segments, particularly health care, medical, aerospace, green aviation, semiconductor business, e-mobility and sensor technology.

"We have a strong list of (acquisition) prospects, which we now like to turn into pipeline, and we are also allocating more resources internally to drive the M&A agenda," Chief Financial Officer Fredrik Nilsson said.

Fredrik Nilsson also gave a little insight into how seriously Trelleborg is walking the acquisition trail, noting that the company had identified 200 acquisition prospects.

The biggest factor, according to Peter Nilsson, is timing.

"We have had M&A ambitions, but we have not been able to execute. But we feel we have good prospects and are able to execute some M&As," Peter Nilsson said. "The conditions are better than ever, both operationally, and thanks to trends such as increased electrification, digitization and industrial automation."

Last month, Trelleborg Healthcare and Medical appointed Kevin Ehlert as director of mergers and acquisitions for the segment.

"Kevin will help us identify complementary acquisitions to round out our offerings so we can strengthen our position as a complete solutions partner for our customers," said Linda Muroski, president of Trelleborg Sealing Solutions Marketing Americas and Global Healthcare and Medical. "Trelleborg helps customers with design for manufacturing customized solutions, and production of complete medical devices."

The segment has seen significant organic growth in recent years and in 2021, in particular. The growth, Trelleborg said, comes even as the omicron variant hit sales by curbing some scheduled operations.

The full-year 2021 financial results for the segment showed sales were up 15 percent at $1.4 billion, while EBIT rose 34 percent to $306 million.

Trelleborg Sealing Solutions signaled that it, too, is preparing for some strategic M&A deals of its own, at least in the Americas region. Last month, TSS named Heather Castleman director of mergers and acquisitions for Marketing Americas Industrial.

"Trelleborg Sealing Solutions is geographically expanding its business," Muroski said. "Within the Americas, Heather will explore our footprint for production and other adjacencies. She will also work to acquire local distributors to serve strategic customers through our ServicePLUS integrated solutions model."

Last year, Trelleborg Sealing Solutions' organic sales performed favorably in all market segments and geographies. There was, however one exception. The automotive industry, still plagued by supply chain bottlenecks and semiconductor shortages, did not perform as well.

Late last year, Chief Financial Officer Frederik Nilsson noted that the company was prepared to repurchase its own shares at a rate as high as $328 million annually.

On March 25, Trelleborg released a statement noting that it is prepared to purchase up to 2.5 million shares of series B for a total amount not exceeding about $42.5 million (SEK 400 million). It will make that purchase between March 28 and April 26.

Trelleborg cannot, at any time, hold more than 10 percent of the outstanding shares in the company, the firm said in its statement.

The total number of Trelleborg shares is around 271 million, of which about 28.5 million are shares of series A and roughly 242.5 million are shares of series B.

Trelleborg, as of March 25, did not hold any of its own shares.