Trelleborg's major transition: 3 moves that changed the firm

TRELLEBORG, Sweden—Trelleborg A.B. experienced perhaps its most transformational year in the company's 117-year history, selling off its wheel systems segment for $2.3 billion, making several major bolt-on acquisitions within its remaining business segments and completely restructuring into a more streamlined firm.

In fact, two bolt-on acquisitions (in 2016 and 2019) even helped the global seal and damping products manufacturer add another standalone unit in 2022 within sealing solutions: Trelleborg Healthcare and Medical.

The year began inauspiciously enough for Trelleborg, finalizing one acquisition within its industrial solutions business.

Trelleborg increased its footprint in North America with the Dec. 30, 2021, acquisition of the Alpha Elastomers Division of Alpha Engineered Composites Inc., giving Trelleborg Industrial Solutions new applications in silicone and polymer-coated fabrics.

In April, speculation became reality, as the firm agreed to sell its wheel systems segment for $2.3 billion to Yokohama Rubber Co. Ltd. in a cash and debt-free deal.

Japan-based Yokohama saw the deal as a chance to make its tire operations less dependent on consumer tires, while Trelleborg shed an operation it believed was at the top of its valuation, freeing the company up to focus on its non-tire rubber businesses.

On April 25, Trelleborg announced the acquisition of EirMed L.L.C., based in Menomenie, Wis., a producer of medical devices through plastic injection molding.

And in late October, Trelleborg finalized the $860 million acquisition of Minnesota Rubber and Plastics L.L.C., which saw sales of about $262.2 million in 2021, according to Trelleborg.

In January, the deal was hinted at, rumored and ultimately rebuffed by Trelleborg A.B.

On April 4, rumors became reality as Trelleborg agreed to sell its Trelleborg Wheel Systems business to Yokohama Rubber Co. Ltd. for $2.3 billion in a cash and debt-free deal.

The deal, which was delayed near the end of the year due to regulatory approval needs, came three months after speculation surfaced that the Japanese tire maker was interested in acquiring the Trelleborg unit, which generated $1.17 billion in revenue last year on the sale of agricultural tires and wheels.

The wheel systems segment, viewed at the time by Trelleborg as being "at the height of its valuation," generated 69 percent of its business in Europe in 2021, followed by North America at 18 percent, Latin America at 6 percent and the rest of the world 7 percent.

It had an earnings before interest and taxes (EBIT) margin of 12 percent on the year, according to data provided by the firms.

Without its tire and wheels business, Trelleborg said it is ready to focus on more lucrative areas of growth.

While Trelleborg ranked as the No. 9 largest global manufacturer of non-tire rubber products with $2.61 billion in 2021 sales, according to Rubber News' latest rankings data, the company ranked No. 33 in tires sales with tire revenue of $765 million.

The company had maintained 10 tire plants in seven countries on three continents—China, Czech Republic, India, Italy, Serbia, Sri Lanka and the U.S.—and four wheel plants in four nations.

Because of the high amount of greenhouse gases emitted during tire manufacturing, the divestment also immediately improved the sustainability rating of the company. That is because the TWS business accounted for 67 percent of the company's overall climate impact, but only 30 percent of sales.

Trelleborg's $860 million acquisition of Minnesota Rubber and Plastics was five years in the making.

The Swedish firm said the deal, finalized in October, "complements and strengthens" the seal and gasket maker. Plymouth, Minn.-based MRP, is a manufacturer of rubber, thermoplastic and polymer products.

Trelleborg's newest acquisition (within Trelleborg Sealing Solutions) gains some context against the backdrop of its new, leaner structure, especially when considering the $2.3 billion that Trelleborg gleaned from the sale of its wheel systems segment to Yokohama Rubber Co. Ltd. in March.

The major acquisition will allow Trelleborg to expand its North American footprint in several business areas, including specialty industrial, medical, food and beverage, and water-related infrastructure components—MRP's areas of expertise.

"This is a step change for Trelleborg Sealing Solutions," Trelleborg CEO Peter Nilsson said in August. "The business area will be as strong in North America as its already-established position in Europe."

MRP had sales of about $262.2 million in 2021, according to Trelleborg.

MRP, which historically has grown organically (with some acquisitions) at between 8 and 10 percent per year, sees its largest sales in North America, followed by Asia and Europe.

Besides its end-use manufacturing in the aforementioned applications, Trelleborg will look to leverage the technical prowess of MRP in research, design and engineering.

Looking ahead, Trelleborg Industrial Solutions is set to start the production of automotive steering and transmission boots in Japan during 2023.

The manufacturing facility in Odawara, southwest of Tokyo, will give TIS access to Japanese OEMs around the world, Trelleborg said in a Dec. 5 analyst day presentation in Stuttgart.

Production at the new facility is expected to start in the first half of 2023, and was delayed from the original launch date of early 2022 announced in October 2021.

The investment in Japan is part of a wider group of $32 million in expansion projects announced in 2021, with the plan to increase Trelleborg's presence in new regions.

Automotive boots comprise a dynamic sealing system, and typically are manufactured from thermoplastic elastomer material. They are used in vehicle drive shafts and prevent ingress of contaminants. Trelleborg, which operates sales offices for sealing and marine solutions in Japan, noted a "highly favorable sales trend for its automotive boots operations over a long period (in the country)."