WESTPORT, Conn.—Private equity firm Sterling Investment Partners´ recent purchase of a $41 million equity interest in GPX International Tire Corp. gives GPX the financial muscle to pursue acquisitions and be a major player in the specialty tire market.
GPX is the company formed by the recent merger of Dynamic Tire Corp. and Galaxy Tire & Wheel Inc. Douglas Newhouse, a Sterling managing partner, said Sterling has had a history of working with Galaxy on acquisitions that interested the company.
"We anticipate providing them, as a financial partner, with the resources to build the business, whether it´s through acquisitions or capital expansions in their own facilities," Newhouse said. He declined to discuss what share Sterling now owns in GPX. However, the GPX management team will continue to own about 50 percent of the company, according to GPX co-CEO Bryan Ganz.
Sterling invests in a variety of industries, including professional and business services, manufacturing, transportation and logistics, and technology-related companies. The firm has completed investments, strategic or add-on acquisitions and liquidity events with an aggregate transaction value of about $4 billion, representing more than 45 companies.
Before the Sept. 30 closing of the Dynamic-Galaxy merger, the combined company had initiated a search for a financial partner, both to fund an ambitious capital expenditure program and to take advantage of acquisition opportunities. Its desire to be a leading player in the developing consolidation of the specialty tire market was another reason that attracted Sterling to invest in the newly merged company, according to M. William Macy, another Sterling managing partner.
Ganz said a "lot of opportunities are going to come down the pike," including purchasing production resources or divisions of larger tire companies. "So, we felt that in order to be able to take advantage of these opportunities as they arose, we needed to have somebody with deep pockets."
Some of those opportunities definitely are in China, where GPX has a number of production investment initiatives and long-standing relationships. Ganz said the company is eyeing acquiring some of those contracted plants.
"We´ve got a lot of relationships where we´re more than 50 percent of the off-take of several factories," he said. "So these also represent interesting opportunities for us to secure our production."
GPX is trying to implement a production model where 30 to 50 percent of its capacity comes from wholly owned facilities. Ganz noted that the company wants to achieve more quality control over its products but not make a capital investment so large that a reasonable rate of return is impossible.
He declined to discuss any specific Chinese plants, saying GPX is in negotiations with some Chinese tire makers.
The company also is doubling the size of its Ruma, Serbia, factory and adding the capability to make a full line of European industrial tires, multipurpose traction tires featuring a European tread design, flotation tires and radial agricultural tires.
Ganz said the Ruma plant is operating at full capacity and will produce about 13,000 tons of product in 2005. GPX wants to increase production capacity there to 26,000 tons annually, he said.
The Serbia factory expansion should be complete by 2007. Ganz said most of the original equipment products made in Ruma are shipped to North America, and the plan is to shift production for North America to China and dedicate the Ruma factory to supplying the European market exclusively. To do that, Ganz said GPX needs a factory of its own in China.
"We´re looking to get into the radial agricultural tires, radial flotation, some of the European implement sizes, the MPT tires for Europe," he said. "We´re really going to use that facility to expand our presence in Europe."
GPX expects to post sales of about $315 million for 2005, 85 percent of which comes from North America. "So we´re heavily North American-centric, and we see Europe as providing a real opportunity for growth for us, particularly now that we have this foundation," he said.
This story was written by Vera Fedchenko, a staff member of Tire Business.