Once a seller, Trelleborg now a streamlined buyer

TRELLEBORG, Sweden—The recent $2.3 billion sale of its wheel systems segment has made seals, gaskets, damping components—and soon former—tire manufacturer Trelleborg A.B. less cyclical, more sustainable and much more likely to be aggressive with bolt-on acquisitions moving forward.

Trelleborg divested Trelleborg Wheel Systems, an agricultural tire and wheel business that generated about $1.17 billion in sales last year, to Yokohama Rubber Co. Ltd. March 24. The deal is expected to close some time later this year, subject to regulatory approvals.

"We received multiple expressions of interest from various players over the years," Patrik Romberg, senior vice president of group communications and human resources at Trelleborg, told Rubber News. "While evaluating different alternatives for Trelleborg, we concluded that a divestment at the valuation we were offered by Yokohama generates the most shareholder value and creates exciting opportunities going forward.

"There is an ongoing consolidation in the off-highway tire business, and our tire operation is worth more to a consolidator who will enjoy synergies, than it is to us."

Trelleborg Sealing Solutions and Trelleborg Industrial Solutions, areas that now comprise about 53 percent and 47 percent of Trelleborg A.B., respectively, will look to grow through acquisitions in health care and medical; aerospace and defense; and automotive, especially in electric vehicles.

The company said any such acquisitions in these areas will be governed by trends in digitization and automation, as well as electrification.

"The off-highway market is highly attractive, but there is no denying it is more cyclical and capital-intensive than our two other business areas: Trelleborg Industrial Solutions and Trelleborg Sealing Solutions," Romberg said. "With the two remaining business areas, we will enjoy a more coherent portfolio with similar business models and drivers. We will improve our profitability and capital efficiency, while the transaction also reduces our cyclicality.

"Our sustainability profile improves significantly with a lower CO2 footprint."

As the streamlined company looks ahead, especially in its sought-after growth areas, Romberg said it is no secret that Trelleborg will look to purchase relevant businesses.

"We will now focus fully on continuing to develop our remaining business areas," Romberg said. "We are doing so by making additional investments in our operations, and by accelerating a number of business acquisitions. Overall, this gives us both higher organic and structural growth. There is no secret that we want to speed up the number of selected bolt-on acquisitions in both of our business areas."

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

And the company has made numerous hires since the beginning of the year, two of which stand out in the acquisitions space for medical and aerospace, respectively.

Last month, Trelleborg Healthcare and Medical appointed Kevin Ehlert as director of mergers and acquisitions for the division, which saw sales increase by 15 percent to $1.4 billion in 2021 over 2020.

The company also named Heather Castleman director of mergers and acquisitions for Marketing Americas Industrial within TSS.

"Trelleborg Sealing Solutions is geographically expanding its business," said Linda Muroski, president of Trelleborg Sealing Solutions Marketing Americas and Global Healthcare and Medical. "Within the Americas, Heather will explore our footprint for production and other adjacencies. She will also work to acquire local distributors to serve strategic customers through our ServicePLUS integrated solutions model."

Other outside businesses are sure to follow EirMed, Romberg said, as more than 200 possible companies are in "an active pipeline" and being targeted by Trelleborg.

"Acquisitions are a core feature of Trelleborg's strategy, and we acquire businesses in attractive areas where opportunities exist to achieve competitive advantages and a leading position," Romberg said. "We have, in fact, an active pipeline of 200-plus targets that we monitor.

"We will look to expand ... into adjacent products and solutions that complement and strengthen our existing offerings, into new technologies or applications, or to new geographical areas."

Both TIS and TSS have a presence in health care/medical as well as aerospace, the major markets being targeted for growth by the Swedish company.

Within medical and health care, TIS develops and manufactures engineered fabrics for support surfaces and seating (such as mattresses and cushions), and for surgical and wearable uses (such as wound retractors and blood pressure cuffs).

TSS works in a wide range of products and solutions for pharmaceutical, biotech, medical and life science applications, based on various materials including silicone, PTFE-based compounds, elastomers and plastics.

On the aerospace side, TIS develops and manufactures engineered fabrics for evacuation slides and fire-resistant coatings, as well as applications for aviation fuel hoses.

TSS develops and manufactures a whole range of critical aircraft sealing solutions, Romberg said.

"We have launched an intensified focus on industries which are undergoing rapid, positive change—industries that can act as a driving force or engine for other areas of the group," he said.

Besides these major markets, that could include semiconductors, battery and sensor technologies that will be key to electric vehicle production, hydrogen applications or industrial automation, including robotics.

"Here, we see pockets of opportunities both with our current portfolio of products and solutions but also opportunities to expand into adjacent products and solutions that complement and strengthen our existing offerings," Romberg said.

While OEMs remain paramount for their business, Trelleborg will seek to improve its offerings in the aftermarket and add "stable earnings" through various services for products, and transition from exclusively delivering products to becoming "a supplier of comprehensive solutions," Romberg said.

"We see clearly how our repeat customers are seeking an offering beyond simply purchasing a product," he said. "Trelleborg will continue building complete offerings that comprise several products, implementation, testing, analysis and aftermarket service."

Geographically, Romberg noted that Trelleborg will look to make inroads in the Asian market. The company does about 50 percent of its business in Europe, with North America slotting at 25 percent and Asia and the rest of the world (combined) comprising another 25 percent.

"We want to be present in all areas of the value chain," Romberg said, adding that means "value-generating services, which, in combination, also becomes a comprehensive solution."

In a statement, CEO Peter Nilsson said Trelleborg's past merger and acquisition ambitions have not been fully realized.

"We have not been able to execute," he said. "But we feel we have good prospects. The conditions are better than ever, both operationally and thanks to trends such as increased electrification, digitization and industrial automation."

While Trelleborg ranked as the No. 9 largest global manufacturer of non-tire rubber products with $2.61 billion in 2020 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.

Total employment was about 6,750 people for the segment, which accounted for about 30 percent of Trelleborg A.B. sales.

Because of the high amount of greenhouse gases emitted during tire manufacturing, the divestment immediately improves the sustainability of the company, Romberg said.

"Tire manufacturing is very energy-intensive and difficult to influence," he said. "We have, of course, worked intensely with different measures to lower its CO2 emissions and we believe Trelleborg Wheel Systems is best-in-class in its category (prior to the divestment)."

For example, TWS installed a biomass boiler—powered by the remains of rubber trees—in Sri Lanka, which significantly improved its climate footprint in that country.

"Still, (the) Trelleborg Wheel Systems part of our climate impact (was) 67 percent, but it only constituted 30 percent of our sales," Romberg said.

As Trelleborg seeks to reduce its CO2 emissions by 50 percent by 2025, it is eying a net-zero emission threshold by 2035, Romberg said.

Of tires manufactured and sold by Trelleborg, agricultural tires accounted for about 60 percent; industrial tires 20 percent; and the remainder for construction machinery and motorcycles.

The company did not break down its sales by tires versus wheels.

"Our goal is to be the sustainability leader in our industry, so we have increased the share of bio-based and recycled raw materials in our solutions, having resource efficiency and circularity as given parts of Trelleborg's DNA," Romberg said.

"Based on today's strong platform, Trelleborg has continued to build strong partnerships with key industrial players and further expanded in attractive areas."