2/12/2014 Updated 2/14/2014

Henniges acquires JV, forms strategic alliances

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By Chris Sweeney Follow Author

Douglas DelGrosso, Henniges president and CEO

AUBURN HILLS, Mich.—It has been a busy three months for Henniges Automotive Holdings Inc.

The firm just acquired the remaining 40 percent of Beijing Wanyuan-Henniges Sealing Systems Co. Ltd., its Chinese joint venture with China Academy of Launch Vehicle Technology.

Henniges and the academy started the joint venture in 1995. The Chinese entity now will operate under the Henniges Automotive name.

The firm would not disclose financial details of the transaction.

The firm also agreed to a strategic alliance with AD Plastik d.d.'s facility in Togliatti, Russia. The partnership is focused on supporting the growth of key automotive original equipment manufacturers.

AD Plastik manufactures plastic products—ranging from door paneling and instrument boards to ashtrays and ceiling light fixtures—for the automotive industry.

Its strategic alliance with AD Plastik is the third such strategic alliance since November. Henniges also entered similar agreements with Amee Rubber Industries Pvt. Ltd. and Burkool S.A.

Amee produces sealing systems and molded rubber parts for automobiles throughout India. The firm, headquartered in Mumbai, India, operates a plant in Gujarat, India.

Burkool is a sealing components manufacturer based in Buenos Aires, Argentina.

"Part of our plan is basically to have an answer for any region that our major customers operate in," said Douglas DelGrosso, Henniges president and CEO. "We think we've satisfied that now. That was an issue that existed 18 months ago. Many of our auto makers are building off a global platform. They've determined that it's more efficient for them to single source to suppliers who have the ability to do the same."

More control, more flexibility

Henniges established Wanyuan Henniges at a time when joint ventures were the only way western companies—particularly automotive supply companies—could enter the Chinese market, DelGrosso said. The firm always had wanted complete control over its interest in China. The opportunity presented itself when its partner expressed an interest to leave the joint venture for its own strategic reasons.

"It was a necessary structural entry point," DelGrosso said. "It's operated very, very well through the years. But as things changed and the market evolved in China, western companies were allowed to set up independent wholly owned operations. Many of the automotive suppliers wanted to pursue that direction instead of relying solely on a joint venture."

The purchase integrates five Chinese manufacturing plants and a technical center into its global profile: Chengdu, Tianjin, Changchun, Tieling and Beijing—which also houses the technical center.

DelGrosso said one of the big advantages of sole ownership is efficiency. Henniges now can make decisions quicker without having to consult a partner who, in some cases, may not have the same long-term view as Henniges.

"When you have a partner that is perhaps less interested in the industry, they may be a reluctant participant on longer-term strategic decisions," DelGrosso said. "We can move quicker and only have to satisfy ourselves on the logic of our business decisions."

A big asset in assuming total control of Wanyuan Henniges is the elimination of the non-compete agreement it entered with the China Academy as part of the joint venture.

The agreement prohibited Henniges from talking with other potential partners in the region, but now Henniges has the freedom to look at acquisitions as a viable strategy for future growth in China.

DelGrosso said Henniges' business has grown significantly since 2011 and projects that by 2017, the firm will nearly double its Chinese sales. It plans to make significant investments over the next five years to bring three other Chinese facilities that launched over the last 18 months to full capacity.

"We obviously see China as the growth market in the automotive business," he said. "It's important to have that kind of control over your destiny in the most rapidly growing market that is out there."

Wanyuan Henniges employs more than 1,500 to design, develop and manufacture sealing products for customers that include FAW-Volkswagen Automobile Co. Ltd., FAW Car, Dongfeng Peugeot Citroen and Shanghai Volkswagen.

Henniges said Wanyuan Henniges recently began providing production parts for a global General Motors program.

Getting its feet wet

Henniges' three strategic alliances are in regions where the firm does not have a manufacturing presence. The agreements allow Henniges to utilize extra capacity in the three suppliers' manufacturing plants for production if business is awarded to Henniges.

"Currently we don't have the critical mass to establish a wholly owned entity," DelGrosso said. "We can't build a plant and operate it effectively from a financial standpoint because the revenue stream isn't there. It allows us to satisfy the needs of some of our customers who want suppliers like us to have capability in any region that they operate in, but don't currently offer enough business for us to put up a stand-alone facility."

Henniges would bring each company business that allows them to fill capacity that otherwise sits idle. In exchange, DelGrosso said, the various companies would gain exposure to the advanced technology Henniges possesses, which would help them from an operating efficiency standpoint.

Henniges also gets a taste of how to operate in a new region.

"If our business grows in these regions to the point where we gain critical mass, we can set up our own facility," DelGrosso said.

"Along the way we're gaining insight on how to operate in these regions that currently we have limited experience and knowledge operating in."

The firm operates three plants in Europe—in Rehburg, Germany, and in Mlada and Hranice, Czech Republic—with technical centers in Viersen, Germany, and at the Hranice site.

In North America, the company has five plants: Frederick, Okla.; New Haven, Mo.; Reidsville, N.C.; Keokuk, Iowa; and Oakville, Ontario. Its global headquarters in Auburn Hills, Mich., also houses its North American technical center.

Henniges operates three Mexican facilities in Guadalajara, Torreon and Gomez Palacio.

Henniges provides automotive original equipment manufacturers with sealing systems for doors, windows, trunks, lift gates, sunroofs and hoods. The company also supplies the automotive market with anti-vibration products, encapsulated glass and other rubber components.