Cooper Standard looking beyond automotive, diversifying with acquisitions

NOVI, Mich.—Cooper Standard Automotive Inc. changed a lot in 2018.

After executing five major deals—four acquisitions and a divestiture of one of its primary product lines—Cooper Standard has reshaped its core product offerings and set the foundation for its non-automotive business.

The firm now operates under three automotive product groups: rubber and plastic sealing, fuel and brake lines, and fluid transfer hoses, plus its non-automotive Industrial and Specialty Group. Chief Operating Officer Keith Stephenson said the firm will continue to invest heavily in these areas, but long term Cooper Standard has set a goal for its ISG to account for 25-30 percent of its revenue within the 2023-25 time period.

"We love the automotive space, and we intend to continue to grow our business on the automotive side both organically and inorganically," Stephenson. "But we also think we can leverage our technology into adjacent markets like commercial vehicle, industrial and agriculture."

Cooper Standard has leveraged its technology for non-automotive in a variety of ways.

Organically, Stephenson said the company has had success within the commercial vehicle and power sports areas. It also has secured licensing agreements to produce its Fortrex compound, a lightweight elastomeric material that combines the best attributes of EPDM and thermoplastic vulcanizates, two common materials used in sealing, in non-automotive applications.

In the third quarter, the firm said it had secured a second licensing agreement with an unidentified "major North American material compounding company with an extensive sales force and customer base."

In the fourth quarter, Cooper Standard entered into an agreement with PolyOne Corp., allowing the company to sell Fortrex-based formulations into select markets. Cooper Standard said those applications include electrical/electronics, health care and complex industrial products. It will exclusively retain all rights to Fortrex and will generate revenue/profit from royalty income based on PolyOne's sale of Fortrex.

"The business is growing organically and doing a very nice job there," Stephenson said. "We've added some talent to the organization. We want to find additional bolt-on opportunities in the future in addition to growing organically."

One of its biggest deals of 2018 was its July acquisition of Lauren Manufacturing and Lauren Plastics, which projects its ISG business to account for 7.6 percent based on fiscal 2019 revenue. Prior to 2018, Cooper Standard's non-automotive business accounted for about 5 percent of its $3.62 billion in consolidated 2017 sales.

"It was an excellent opportunity to acquire what we feel is a very good company," Stephenson said. "Lauren is an excellent strategic and cultural fit, which was very important for both us and Lauren. It's everything hoped for in terms of the quality of the asset and the quality of the people. This allows us to grow our ISG business significantly in North America."

Lauren adds new markets that Cooper didn't previously participate in, most notably seals for the building materials space. In addition to adjacent, non-automotive markets, the firm brings established customers and relationships that Cooper's core technologies can break into.

Stephenson said the integration process has gone smoothly and that Lauren has become a "very important part" of its ISG business.

"Lauren is a jewel," Stephenson said. "We think of it as a high-quality asset. We think there are other assets like it out there that if we can find them, buy them right and integrate them well, it could be really beneficial to the company and our shareholders."

The firm expanded its global leadership team to place an added focus on acquisition opportunities, appointing Gabrielle Corrent as its vice president of strategy and mergers and acquisitions.

Reshaping the core

Cooper Standard's other big move from 2018 was entering an agreement with Continental A.G. to divest its anti-vibration systems business for $265.5 million. The transaction still is going through the approval process and Stephenson said it won't be complete until the first half of 2019.

If approved, the AVS business will merge with Continental's Vibration Controls business unit, giving it 15 facilities: five in Germany; two in France; one in Slovakia; one in Mexico; one in Brazil; one in China; one in Auburn, Ind.; one in Mitchell, Ontario; and will hold a 50 percent stake in Sujan Cooper, a joint venture in India that operates sites in Pune and Chennai.

"So far everything has moved along well," Stephenson said. "It's been well received by our customers, our employees and the Continental folks. We believe this has been a very good landing spot for that business. The AVS business is a good business, but we didn't see a way of being No. 1 or No. 2 in that product line. We're No. 1 or No. 2 in our core product lines and in this case we didn't see a clear path to that, so we decided to make the divestiture. We think we've found an excellent home for that business."

It doesn't take long to see why the deal makes sense for Continental. Cooper Standard's AVS business is strong in North America and India while Continental's Vibration Controls business is well-established in Europe and China. The two also have complementary customer bases.

The combined business will generate sales of about $737.8 million. Cooper Standard reported about $326.7 million for its AVS unit in 2017. The business employs about 1,000 people globally, who will all transfer to Continental with the business.

"We view Continental as a quality company," Stephenson said. "They have a very strong reputation within the industry, they're a major player. We knew that our customers would view that favorably as well. It's fit well from both sides relative to the business. Our customers are supportive of the transaction and it's a good landing spot for our people, which is very important to us in any transaction. We want to find the right home for our people so they can continue to grow as individuals as well."

The firm also is transitioning its leadership, as Stephenson will retire from the company on April 2, concluding a 12-year career with Cooper Standard. The company has established global manufacturing, engineering and innovation organizations, and expanded its global leadership team as such. Patrick R. Clark will become the company's chief global engineering and product strategy officer, Christopher E. Couch will become chief innovation officer and Hans O. Helmrich will serve as chief global manufacturing officer.

Renewed focus

As for the divestiture, Stephenson said it will allow Cooper Standard to place a stronger focus on its core product lines. The firm remained committed to growing its remaining automotive units in 2018 with three other acquisitions.

In February, the firm acquired AMI Shandong Automotive Fluid System Co., a China-based fuel and brake line manufacturer with facilities in Shanghai and Yantai.

In May, the firm acquired 80.1 percent of LS Mtron's automotive parts business, a South Korea-based company that produces jounce brake lines and charge air cooling technology. The deal will significantly enhance Cooper's fuel and brake product portfolio.

LS Mtron's jounce brake lines, made from synthetic rubber, connects the brake line to the caliper. With Cooper Standard already producing the brake line, the combined firm will offer a complete system to original equipment manufacturers.

The business is just one part of the LS Group, which will retain a 19.9 percent ownership stake of the automotive parts unit. Its automotive parts business employs 100 and accounted for $90 million of LS Mtron's $1 billion in sales. LS Mtron, and its nearly 1,700 employees, is part of a larger conglomerate with $25 billion in sales.

LS Mtron's other products include offerings for the wire and cable industry, which Stephenson said could open up other partnerships between the firms down the road.

And most recently, Cooper Standard added Sanford, Fla.-based Hutchings Automotive Products, a North American supplier of metal tubing fluid carrying products for automotive powertrain and coolant systems applications. Stephenson said the deal expands Cooper Standard's addressable market by more than $1 billion. The firm also operates two plants in Costa Rica.

He added that all of Cooper Standard's 2018 deals fit "perfectly with its strategy," one it intends to continue implementing in 2019.

"I can assure you we're looking for opportunities within each of our three core product lines and the ISG space," Stephenson said. "We're going to stay as a very disciplined buyer, but we're looking for opportunities to expand both organically and inorganically."