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Editorial: ContiTech wins in Veyance acquisition

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Whenever a major acquisition is made in business, it is customary to make a big deal out of what a "perfect fit" the two companies are. But with ContiTech A.G.'s proposed purchase of Veyance Technologies Inc.—the former Goodyear Engineered Products business—that actually may be the case.

The division of Continental A.G. already was the world's top non-tire rubber product maker. But ContiTech dearly wanted to spread its business more evenly throughout the world, as it derived 66 percent of sales in Europe and just 10 percent in the NAFTA region.

By buying Veyance from private equity firm Carlyle Group, ContiTech will take a giant step in that direction once the deal is closed later this year. About half of Veyance's revenues come from North America, and it will also give its new owner a big boost in South America.

In addition, Veyance will help the German firm become less dependent on automotive, as 90 percent of the U.S. firm's sales are outside of the car industry.

The employees of Veyance should be glad to be back in the hands of a strategic owner. In meeting with staff at the firm's headquarters in Fairlawn, Ohio, ContiTech CEO Heinz-Gerhard Wente told them that closing plants does not fit into Conti's growth strategy.

From all accounts, the Veyance experience was not a good investment for Carlyle. It paid nearly $1.5 billion for the company in 2007. The recession made plans for an IPO unworkable, and a joint venture in China required a large investment. So the $1.91 billion Carlyle is set to receive falls far short of private equity standards.

John Hamilton was hired by Carlyle to lead Veyance in 2010 to get it more profitable and in shape to be sold. He told staff members he wasn't there to make friends, he kept his office in Chicago and did what Carlyle brought him on board to do. In the end, he paved the way for Carlyle to turn over Veyance to "good owners," as he put it. That is important for the private equity firm in the future as it looks for other candidates to purchase.