Wynnchurch Goes Off-Roading, Hits Labor Bump –

Wynnchurch Capital decided to take the road less traveled, acquiring ArvinMeritor, the off-road vehicle parts manufacturing business. Based in Lake Forest, Ill., Wynnchurch teamed up with Resilience Capital Partners for the purchase. At the close of the deal, which occurred Dec. 30, Wynnchurch renamed the company AxleTech International.

Terms of the transaction were not disclosed, although Wynnchurch Managing Director Robert Vedra did note that his firm’s equity contribution fit within its typical $5 million to $15 million range. Of the total equity portion, Wynnchurch provided an 80% stake, while Resilience chipped in with the remaining 20 percent. LaSalle Business Credit provided additional financing in the form of a senior debt facility, which Vedra said accounted for more than 60% of the total purchase price.

AxleTech, headquartered in Troy, Mich., was ArvinMeritor’s off-highway business division. The unit takes in roughly $160 million in revenues annually, and is a provider of heavy-duty off-road axles and components, planetary axles, a full line of brakes, and after-market components and support. The products are primarily used in off-highway vehicles in the construction, material handling, forestry, mining and agricultural industries. AxleTech products are also used in military vehicles and commercial specialty trucks.

The unit became available as ArvinMeritor shifted its focus to concentrate more exclusively on “on-highway” products, according to Vedra. He noted that the business suffered as it was often overlooked under ArvinMeritor’s watch, and he expects that with increased attention as a stand-alone concern, AxleTech should post “double-digit” growth going forward.

The firm tapped industry veteran Mary L. Petrovich to serve as chief executive officer at AxleTech. Petrovich has previously served as president of Dura Automotive’s Driver Controls Division. Looking ahead, Vedra said AxleTech would look to grow organically and through add-on acquisitions. He sees room for improvement in the company’s approach to after-market sales, which, he said, as a part of ArvinMeritor, were “systematically ignored.”

Vedra went on to say that the off-road parts industry as a whole is typically overlooked by the larger OEMs. “Traditionally, this is a sleepy industry, with a focus away from off-highway parts,” he said. With that in mind, he believes that with AxleTech’s sole focus on off-road, the company will have a leg up on its competitors.

Wynnchurch expects to have a number of exit routes available when the time comes to divest. Vedra believes AxleTech will draw interest from both financial and strategic players, and said an IPO is possible if the company follows through on its plans to consolidate. “We have already been approached by a foreign OEM,” he added.

While the deal went off without a hitch, the new company is off to a bumpy start, as labor problems have beset the business since the change of ownership. At issue, when AxleTech’s Oshkosh, Wis., manufacturing plant opened for business under the new owners, workers at the plant were greeted with a waiver asking the employees to forego their seniority rights and agree to a pay cut.

Under the previous contract, the plant’s workers, who are represented by the United Auto Workers Local 291, earned $21 an hour for skilled trade jobs and $19 an hour for unskilled labor. The requested cuts would have reportedly trimmed hourly wages to between $14 and $12 an hour. However, after a day of picketing, more than 90% of the employees had signed the waivers agreeing to temporary pay cuts.

Still, there is a lingering question as to what comes next. Union President Alan Sawitski publicly stated, “Both sides have agreed to return to negotiate a ratifiable contract,” while Dan Miller, an executive vice president at AxleTech, indicated that the company has not agreed to new negotiations, but will allow the workers to vote again on the contract they originally rejected in a preliminary tally. That contract seeks to cut hourly pay rates to between $16 and $14 an hour.

Vedra maintained that the two sides are “extremely close” to achieving a new contract. “We have the UAW’s support on a national and regional level,” he added. The workers were scheduled to vote on the contract Jan. 18.

Wynnchurch used its Wynnchurch Capital Partners LP fund for the purchase, which in January 2000 closed with $163.5 million in capital and has deployed approximately 50% of the fund.