Recommendation for Autoliv Inc| Board of Directors
Discussion Materials | April 16th, 2023
FIR
Deal Team FIR
Maximilian Zwiener
From: Bloomfield, NJ
Kelley School of Business|2026
Major: Finance
Minor: Music
Bennett Stalls
From: Fort Collins, CO
Kelley School of Business|2026
Major: Finance
Minor: Art History
Dhroov Kshatriya
From: India
Kelley School of Business|2026
Majors: Finance
Dual Major: Information Systems
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Contents I. Executive Summary II. Company Overview III. Industry Analysis IV. Strategic Recommendation V. Valuation VI. Strategic Alternatives 4-5 6-8 9-10 11-14 15-18 19-21 3 FIR
Table of
I. Executive Summary
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Executive Summary
Overview
Scope of Proposal
Strategic Assessment
• Autoliv is a global automotive safety equipment OEM provider based in Stockholm, Sweden
• With 45% of the seatbelt market share, 44% of the airbag market share, and 37% of the steering wheel market share, Autoliv is a market leader in the automotive safety market
• Autoliv's domination of its current market and consistent revenues set it up to expand into sustainable automotive markets with strong economic tailwinds through an acquisition of an electric vehicle enabled OEM parts producer
• This proposal will cover the OEM electric vehicle parts industry
• Autoliv's position as a market leader in the OEM parts space and lack of investment in electric vehicle technologies positions the company to benefit from an acquisition of an OEM electric vehicle parts company
• FIR uses its expertise in the industry to present the best investment to extend Autoliv’s success in the OEM auto parts industry
Proposal
• An acquisition of Dana Inc. will allow Autoliv to tap into growing economic tailwinds in the electric vehicle space and expand its current product offerings to allow for significant growth
• Dana Inc. will complement Autoliv's current business model by developing significant production, distribution, and SG&A efficiencies as well as cross-border revenue synergies
• Dana Inc. will allow Autoliv to expand its current product offerings into new spaces in the OEM manufacturing industry to horizontally expand the company's reach
Given Dana Inc.'s market placement, the FIR recommends the acquisition of Dana Inc. at an offer price of $21.33 per share at an implied equity offer price of $3,057M.
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II. Company Overview
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Company Overview
• Autoliv is the world’s largest automotive safety holding company for subsidiaries developing, manufacturing, and supplying automotive safety systems and digital technologies.
• Founded in 1954 and headquartered in Sweden, Autoliv operates in 17 different countries and supplies many of the largest car manufacturers.
• Autoliv has two primary subsidiaries: Autoliv AB and Autoliv ASP, as a result of a merger in 1997
• Autoliv has prided themselves on their relentless focus on innovation and superior quality; as a result, they have been very reactive to demographical trends, evolving government regulations, and even self-driving vehicles.
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Company Overview
Financial Summary (USD, in mm)
Total Revenue: 9,211
EBITDA: 1,002
EBIT: 642
Net Income: 414
Capital Expenditures: (617)
Market Capitalization: 7,365.1
Total Enterprise Value: 9,012.1
Cash and ST Investments: 713
Total Debt: 2,346
Total Assets: 818.5
Stock Performance (NYSE: ALV)
Apr 1997: ALV files for an IPO
Dec 2017: ALV divests electronics business: Veoneer, resulting in share price gains.
Sept 2019: EU mandate for advanced safety features bolstered the stock price and improved financial performance
Max Historical Stock Price
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$$20.00 $40.00 $60.00 $80.00 $100.00 $120.00 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
III. Industry Outlook
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Industry Analysis
Hybrid and EV Manufacturing Market Size, Share, and Revenue
• The Hybrid and EV Manufacturing Industry has a projected 2023 revenue of $88.8 billion, increasing by 24.7% from 2022
• There are 260 businesses currently in this industry, with the average annual growth rate being 12.9%
• Tesla maintains the largest market share at 51.9% followed by Toyota at 16.6% and Ford at 3.4%
Hybrid and EV Manufacturing Industry Key Statistics
• The Hybrid and EV Industry is expected to grow at a compound annual growth rate of 11.7% from 2023 to 2028
• Projected revenues for 2029 are estimated to reach $172.8 billion
• Hybrid and EV Manufacturing Industry Segmentation:
• Electric Vehicles: 45.8%
• Hybrid Vehicles: 37.5%
• Other: 8%
Trends: Increased focus on Global Warming
• In 2021, the global mean temperature was 1.1 degrees Celsius above the preindustrial record and the years 2015-2021 were the warmest on record
• By 2030, over 700 million people will be at risk of displacement due to drought and 3.3-3.6 billion people live in locations that are highly vulnerable to climate change
• COVID-19 resulted in lower carbon emissions, but as the world has fazed out of COVID-19 policies, fossil fuel emissions have been increasing at a significantly higher pace
Trends: Increased Oil Prices are Exacerbating Demand
• In March 2023, OPEC cut oil production by 1.2 million bpd increasing oil prices and Russia petroleum production is projected to fall despite the country outpacing previous estimates in Q1 of 2023
• Gasoline prices are projected by analysts to peak at $3.50 during the upcoming summer season
• As gasoline prices remain high, electric vehicles become more financially viable for consumers increasing demand
10 FIR 54% 16% 3% 3% 2% 22% Hybrid &EVManufacturingMarket Share Tesla Toyota Ford Honda GeneralMotors Other ElectricVehicles ElectricVehicles HybridVehicles Other 45.8%
VI. Strategic Recommendation
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Strategic Recommendation
• Dana Inc. (NYSE:DAN) is a leading OEM producer of energy management and power conveyance technologies with strong exposure to the electric vehicle industry
Dana Inc.
General Overview
• The company hopes to grow its revenues in future years by both investing in the development of new product lines and by maintaining its market position as electric vehicles take over the OEM automotive parts industry
• Taking part in the electric vehicle industry's impressive returns, Dana Inc. is a market leader in the production of axels, driveshafts, e-transmissions, inverters, motors, controllers, and cooling systems
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Strategic Recommendation
Financial Highlights
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Major Products:
Total Revenue
$10,156M
Revenue Growth Gross Profit R&D Spending
19.7% $763M $321M
6.46% EBITDA Margin
1. Axels & Driveshafts: With customers in ICE, hybrid, and EV market segments, these product lines both benefit from the significant growth of EVs while simultaneously maintaining market share in the ICE vehicle market as a hedge.
2. E-Transmissions, Inverters, Motors, and Controllers: These products are focused exclusively on the electric vehicle business unit. Thus, they are projected to see the highest growth in years to come.
-$242M Net Income
3. Cooling Systems: Composing the majority of Dana's Power Technologies business unit, these product offerings focus on temperature regulation for batteries, electronics, and hydrogen fuel cells.
Customer Breakdown
Ford
Stellantis
Volkswagen
Deere & Company
PACCAR
Toyota
General Motors
Diamler
Renault/Nissan
CNH Industrial
Other Customers
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Strategic Recommendation
• Electric Vehicle Adoption: The electric vehicle industry is expected to grow at a 11.7% CAGR in the period 2023-2027 and 40% of cars are estimated to be electric by 2030. As more customers enter the market, companies with investments in the electric vehicle industry will be better positioned for growth in coming years.
Performance Catalysts
• Investment in Environmentally-Conscious Businesses: As of 2018, there $30.6 trillion is invested in ESG funds, and this total is projected to be $50.6 trillion by 2025. This represents over one third of the total $140.5 trillion invested worldwide. As investors pledge capital to socially responsible corporations, investment in the electric vehicle business will position Autoliv for significant growth.
• Government Subsidization of the Electric Vehicle Industry: The federal government subsidizes each electric vehicle by $7,500 and has spent $28 billion as of 2021 investing in their production. It is likely that these expenditures will increase in years to come as the U.S. government attempts to abate climate change in future years.
Revenue Synergies
• Dana Inc. will gain exposure to foreign end markets as a result of this transaction. Only 33% of Autoliv's revenues were generated in the United States and the company is experiencing significant growth in its sectors in Japan and China. Cross-selling Dana products in these end markets will result in increased global revenue streams for Dana.
• Dana Inc.'s exposure to end markets in commercial vehicle and off-highway sectors will allow Autoliv to expand into new markets as well. Currently, Autoliv focuses exclusively on the light vehicle market whereas this business unit represents 45.4% of Dana's revenues (exempting unsegmented power technology sales)
• Developing a larger, more horizontally integrated product line will give Autoliv and Dana an advantage over competitors who only sell products in the electric vehicle component and safety equipment spaces.
• Autoliv's reputation in the global market for OEM auto parts will allow Dana Inc. to gain credibility that will result in increased sales.
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Strategic Recommendation
• The companies have significant raw materials synergies, the largest one being steel. Use of economies of scale can allow the company to negotiate lower steel prices resulting in lower costs.
• Dana Inc. will be able to use Autoliv's steel fabrication capabilities to vertically integrate its current business model.
Cost Synergies
• Diversifying end markets will allow both companies to more accurately predict PP&E and temporary employment expenditures cutting down on waste.
• Significant decreases in staff redundancies can be made. The companies can integrate support staff including HR, IT and cybersecurity, and finance and accounting units resulting in decreases in overall labor expenses.
• Since the end markets of both companies are largely automakers, SG&A redundancies will be formed allowing for the elimination of sales and marketing expenses
Financial Synergies
• Autoliv's position as a company in the automotive industry with significant and steady recurring revenue will position Dana Inc. To acquire more capital for future R&D.
• The acquisition of Dana will provide Autoliv with a growing business unit with economic tailwinds in which it can invest its significant cash reserves ($594 million).
• The acquisition of a company outside of the auto safety sector will allow Autoliv to continue to grow inorganically without continued risk of antitrust legislation.
Potential Concerns & Mitigations
• Autoliv will become dependent on Dana's much more volatile market positioning that is based on the adoption of electric vehicles
• Autoliv will maintain Dana's product lines in the axel and drivetrain units as well as products that service ICE engines to ensure that the company can hedge against a slower integration of EV technologies
• Current safety products customers will not convert into purchasers of Dana Inc electric vehicle products
• The company will incentivize current Autoliv customers to purchase Dana products through the use of temporary reduced pricing and uniquely designed product offerings to ensure that revenue synergies are as pronounced as possible
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VII. Valuation
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Public Comparables
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Comparable CompaniesAnalysis ($inmillions,exeptpershare data) Company Ticker Share Price EquityValue Enterprise Value Revenue EBITDA EBIT DilutedEPS EV/Revenue EV/EBITDA EV/EBIT P/E TierI:LightVehicle AmericanAxle &ManufacturingHoldings,Inc. AXL $7.39 $863.30 $3,484.10 $5,802.40 $725.90 $233.80 $0.53 0.60 4.80 14.90 13.94 MagnaInternational (CAD) MG $72.09 $20,279.10 $26,016.20 $50,948.10 $4,259.00 $2,119.40 $2.75 0.51 6.11 12.28 26.21 Meritor MTOR $36.50 $2,586.50 $3,561.50 $4,295.00 $356.00 $256.00 $3.50 0.83 10.00 13.91 10.43 Mean 0.65 6.97 13.70 16.86 Median 0.60 6.11 13.91 13.94 TierII:CommercialVehicles AllisonTransmission,Inc. ALSN $44.09 $4,264.70 $6,518.70 $2,769.00 $948.00 $793.00 $5.53 2.35 6.88 8.22 7.97 BorgWarnerInc. BWA $47.70 $10,969.20 $14,351.20 $15,801.00 $2,242.00 $1,521.00 $3.99 0.91 6.40 9.44 11.95 LearCorp. LEA $135.32 $7,992.00 $10,315.00 $20,891.50 $1,391.70 $824.10 $5.47 0.49 7.41 12.52 24.74 Mean 1.25 6.90 10.06 14.89 Median 0.91 6.88 9.44 11.95 TierIII:Off-Highway StandardMotorProducts SMP $36.23 $782.20 $1,063.10 $1,371.80 $165.60 $138.00 $3.30 0.77 6.42 7.70 10.98 Gentex Corp. GNTX $27.51 $6,443.90 $6,208.30 $1,919.00 $466.60 $370.00 $1.36 3.24 13.31 16.78 20.23 CTSCorporation CTS $46.03 $1,457.70 $1,408.90 $586.90 $130.70 $100.90 $1.85 2.40 10.78 13.96 24.88 Mean 2.14 10.17 12.82 18.70 Median 2.40 10.78 13.96 20.23 TierIV:PowerTechnologies Modine ManufactoringCompany MOD $21.25 $1,107.60 $1,472.40 $2,254.20 $199.10 $144.00 $1.36 0.65 7.40 10.23 15.63 ValeoSE(EUR) ENXTPA:FR $18.69 $4,400.40 $9,231.40 $20,037.00 $1,622.00 $594.00 $0.94 0.46 5.69 15.54 19.88 TEConnectivity TEL $125.92 $39,803.40 $43,349.40 $16,304.00 $3,646.00 $2,872.00 $7.01 2.66 11.89 15.09 17.96 Mean 1.26 8.33 13.62 17.82 Median 0.65 7.40 15.09 17.96 Overall Mean 1.32 8.09 12.55 17.07 Median 0.78 7.14 13.94 15.95 High 3.24 13.31 16.78 26.21 Low 0.46 4.80 7.70 7.97 MarketData Valuation FinancialData(LTM) Valuation ($ in millions, except per share data) EV/EBITDA 8.09 Dana Inc. EBITDA 635.00 Implied Total Enterprise Value 5137.28 Add: Cash and Cash Equivalents 425.00 Less: Total Debt 2356.00 Less: Preferred StockLess: Non-Controlling Interest 52.00 Implied Equity Value 3154.28 Shares Outstanding 144.30 Implied Share Price 21.86 Valuation (25th percentile) ($ in millions, except per share data) EV/EBITDA 6.18 Dana Inc. EBITDA 635.00 Implied Total Enterprise Value 3925.35 Add: Cash and Cash Equivalents 425.00 Less: Total Debt 2356.00 Less: Preferred StockLess: Non-Controlling Interest 52.00 Implied Equity Value 1942.35 Shares Outstanding 144.30 Implied Share Price 13.46 Valuation (75th percentile) ($ in millions, except per share data) EV/EBITDA 10.59 Dana Inc. EBITDA 635.00 Implied Total Enterprise Value 6721.98 Add: Cash and Cash Equivalents 425.00 Less: Total Debt 2356.00 Less: Preferred StockLess: Non-Controlling Interest 52.00 Implied Equity Value 4738.98 Shares Outstanding 144.30 Implied Share Price 32.84
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Precedent Transactions
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PrecedentTransactions ($inmillions,exceptpershare data) AcquirerName TargetName Date TransactionEnterprise Value LTMRevenue LTMEBITDA TEV/LTMRevenue TEV/LTMEBITDA 1-DayPrior 1-WeekPrior 1-MonthPrior 1-DayPrior 1-WeekPrior 1-MonthPrior Regal RexnordCorporation AltraIndustrial MotionCorp. 3/27/2023 $4,986.54 $1,945.90 $372.90 2.6 13.4 $40.25 $36.22 $33.62 54.00% 71.20% 84.40% CumminsInc. Meritor,Inc 8/3/2022 $3,695.37 $3,928.00 $388.00 0.9 9.5 $24.67 $24.96 $23.79 48.00% 46.20% 53.40% ApolloGlobal Management,Inc. TennecoInc 11/17/2022 $6,707.85 $18,035.00 $1,318.00 0.4 5.1 $9.98 $10.85 $10.81 100.40% 84.30% 85.00% ZPFriedrichshafenAG WABCOHoldingInc. 5/29/2020 $7,342.61 $3,831.00 $609.70 1.9 12 $146.01 $144.50 $120.75 -6.50% -5.50% 13.00% BrookfieldInfrastructure Corporation TritonInternational Limited 4/12/2023 $13,182.03 $1,811.36 $1,704.84 7.3 7.7 $63.01 $61.88 $62.68 34.90% 37.40% 35.60% BorgWarnerInc. Delphi Technologies PLC 1/28/2020 $3,337.17 $4,155.00 $473.25 0.8 7.1 $9.80 $10.54 $12.88 18.50% 10.20% -9.80% Maximum 7.3 13.4 $146.01 $144.50 $120.75 100.40% 84.30% 85.00% 75thPercentile 2.425 11.375 $57.32 $55.47 $55.42 52.50% 64.95% 76.65% Median 1.4 8.6 $32.46 $30.59 $28.71 41.45% 41.80% 44.50% 25thPercentile 0.825 7.25 $13.65 $14.38 $15.61 22.60% 17.00% 18.65% Minimum 0.4 5.1 $146.01 $144.50 $120.75 -6.50% -5.50% -9.80% UndistributedShare Price Premium Share Price ValuationMultiples OperatingMetrics Valuation ($ in millions, except per share data) EV/EBITDA 8.60 Dana Inc. EBITDA 635.00 Implied Total Enterprise Value 5461.00 Add: Cash and Cash Equivalents 425.00 Less: Total Debt 2356.00 Less: Preferred StockLess: Non-Controlling Interest 52.00 Implied Equity Value 3478.00 Shares Outstanding 144.30 Implied Share Price 24.10 Valuation (25th percentile) ($ in millions, except per share data) EV/EBITDA 7.25 Dana Inc. EBITDA 635.00 Implied Total Enterprise Value 4603.75 Add: Cash and Cash Equivalents 425.00 Less: Total Debt 2356.00 Less: Preferred StockLess: Non-Controlling Interest 52.00 Implied Equity Value 2620.75 Shares Outstanding 144.30 Implied Share Price 18.16 Valuation (75th percentile) ($ in millions, except per share data) EV/EBITDA 11.38 Dana Inc. EBITDA 635.00 Implied Total Enterprise Value 7223.13 Add: Cash and Cash Equivalents 425.00 Less: Total Debt 2356.00 Less: Preferred StockLess: Non-Controlling Interest 52.00 Implied Equity Value 5240.13 Shares Outstanding 144.30 Implied Share Price 36.31
Discounted Cash Flow
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Discounted Cash Flow
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Football Field Analysis
Dana Inc. Valuation - Range of Implied Share Prices
52-Week Trading High/Low Discounted Cash Flows Comparable Companies Precedent Transactions
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$11.43 $19.72 $13.46 $18.16 $18.99 $23.04 $32.84 $36.31 $0 $5 $10 $15 $20 $25 $30 $35 $40
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VIII. Strategic Alternatives
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Strategic Alternatives FIR
Financial Fit
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Strategic Fit
Strategic Alternatives FIR
• Exclusively based on electric vehicle battery manufacturing
• Consistently growing market share and significant expenditures in R&D
• Risks:
• History of massive losses with possible inability to attain profitability in the future
• The company would be a burden on Autoliv's ability to remain profitable in its own right
• Cash flow positive company in the manufacturing industry with exposure to the EV space
• The company has a strong record of positive cash flows
• Risks:
• The EV component of this business only makes up a small portion of the company's revenue, major business units are driveline and metal forming products
• A major unit of the business is not in the auto industry
• Very strong hard and soft synergies with Autoliv's current safety focused product lines
• Investments into autonomous driving technologies which could grow quickly
• Risks:
• An acquisition would likely result in antitrust battles, an area where Autoliv is already under scrutiny
• This acquisition would not allow Autoliv to benefit from the electric vehicle market, and autonomous driving investments are merely secondary to the company's original goal of safety products
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IX. Appendix 25
Operating Model FIR
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Operating Model FIR
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Operating Model FIR
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Operating Model FIR
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