Metaldyne Performance IPO: A Shining Light For Automotives

Metaldyne Performance Group Inc MPG, producer of automobile powertrain and safety components, opened for trading last Friday.

Metaldyne was formed in August 2014 by private equity firm, American Securities. Metaldyne uses proprietary metal forming technology to manufacture components for OEM (original equipment manufacturer) and tier 1 suppliers. Its automotive components are used in safety critical applications and powertrains to meet fuel economy performance targets.

Shares traded trading recently at $15.01, down 0.66 percent.

Related Link: Metaldyne Performance Shares Open For Trade

Metaldyne's 12,000 employees service customers through 61 locations in 13 countries on four continents. With 83 percent of its business located primarily in North America, its customers include Ford, General Motors, Toyota Motor, BMW, Porsche, Deere & Company and Caterpillar Inc.

Customer product programs can easily exceed 10 years, providing Metaldyne with long term contracts and resulting in considerable revenue visibility.

Evaluating The Numbers

Company assets are $3.2 billion with $2.7 billion of liability. From 2011 to its most recent September 2014 filing, Metaldyne's revenue grew from $787.7 million to $1.9 billion. Net income over the last three years increased from $46.7 million to $62.9 million.

According to a recent S-1 filing, Metaldyne plans to maintain its financial discipline and continue focusing on future adjusted EBITDA growth, cash flow generation and return on invested capital. Adjusted EBITDA growth reported a steady increase over the last three years from $108.3 million to $353 million, a 225 percent increase.

In an October report, Moody’s ranked Metaldyne at B1 with a probability of default at B2. Moody’s expects its competitive position as an auto parts supplier to continue over the immediate-term and will continue to support strong profit margins. According to the report, debt-to-EBITDA is currently 3.5, and EBIT to interest coverage is currently 3.0x. Following improvement in these areas, Moody’s states it may consider an increased rating.

Taking On The Competition

Over the last three years, Metaldyne sales grew at a 16 percent annual rate from $787 million to $2 billion by the end of 2013. In 2013, comparable company and manufacturer of metal assemblies for OEM applications, Tower International Inc experienced a slight decline in sales from $2.4 billion to $2.1 billion.

Metaldyne's recent successes can be attributed to its competent management team. With over 110 years of combined industry experience, the team’s experience lies in increasing margins, cash flow and liquidity. CEO George Thanopoulos previously served as an executive at Oldco M Corporation and MascoTech where he was inducted into the Automotive Hall of Fame for increasing revenues and driving European growth.

Pricing Information

Metaldyne's steady financial gains, history of proven leadership and global competitiveness creates a unique opportunity for investors. However, due to its heavy debt load, investors should consider their risks and objectives before deciding to invest.

Lead underwriters for the offering are Bank of America Merrill Lynch, Goldman Sachs, and Deutsche Bank. Metaldyne has a market cap of about $1 billion.

Disclosure: At the time of writing, the author holds no positions in any mentioned company.