Tupy buys engine maker MWM, will supply finished products

Tupy, a Brazilian multinational maker of engine blocks and cylinder heads, gains a new business profile with the acquisition of MWM, a traditional truck engine manufacturer, unveiled Monday. The Joinville-based company becomes a supplier of on-demand finished products to heavy vehicle assemblers. At the same time, it enters the market of engine parts and takes the first step in the power generation industry.

Tupy acquired 100% of MWM Brasil for R$865 million. The target company is controlled by Navistar International Corp., a truck maker from the Traton group. MWM will bring revenues of R$2.7 billion a year, according to figures from 2021. Tupy earned R$7.1 billion last year.

Tupy’s expansion comes after another purchase, of competitor Teksid, which was started at the end of 2019 and is seen as a horizontal one. Since last October, the Santa Catarina-based company merged with Teksid’s operations of engine blocks and cylinder heads and other components in Betim, Minas Gerais, and Aveira, Portugal. This set of assets is expected to give Tupy a pro-forma revenue of R$11 billion.

Three years ago, the company defined a growth strategy with both horizontal and vertical moves seeking greater value generation in the production chain, Tupy’s CEO Fernando de Rizzo told Valor. “This acquisition brings this to Tupy’s business, which now assembles engines on demand. In addition, we entered power generation and decarbonization in agribusiness,” he said.

Founded in 1953, MWM is complementary to Tupy’s portfolio, but also opens new business fronts, according to the executive. One is the possibility to go further in power generation and decarbonization projects.

More than 20% of Brazilian trucks run with an MWM engine, and the company supplies truck, bus and machine makers in Brazil, Europe and North America. The company is also seen as a leading maker of electrical generation systems.

The value of the deal was based on a multiple of four times EBITDA, estimated at just over R$215 million, according to the notice of material fact.

MWM operates under engine manufacturing contracts, mainly with Volkswagen’s trucks division in Brazil, Mr. Rizzo said, and this business model will be extended to other Tupy customers around the world. The major engine markets are trucks, agricultural and construction machinery, and marine (boats and ferries).

Another segment considered relevant is the replacement of parts and components for engines – there are 600 stores in the country. In the technical support field, MWM boasts a network of 300 accredited workshops. Tupy is betting on power generation, both through generator sets and the conversion of engines for natural gas, biodiesel, biogas and biomethane, with a focus on agribusiness.

The company’s plant is located in the southern region of the city of São Paulo. MWM also operates a distribution center in Jundiaí (São Paulo state), 60 km from the capital city. The manufacturer employs 1,300 people.

Tupy becomes a more complete company after the acquisition, the executive said. “This asset will bring a lot of value to Tupy, which has an international presence. We will be able to supply other subsidiaries of the Traton group – U.S.’s Navistar, Sweden’s Scania and Germany’s MAN.”

The talks began two years ago, but had been pushed to the back burner because of the Covid-19 pandemic, Mr. Rizzo said.

The acquisition will be partly financed, while the other part will be paid for with the company’s own cash generation. Currently, Tupy’s net debt-to-EBITDA ratio is around 1.5 times. “There is room for leveraging,” Mr. Rizzo said.

BNDESPar, the Brazilian Development Bank’s equity arm, holds a 28% stake in Tupy, while Previ, Banco do Brasil’s pension fund, owns 25% of the company.

Source: Valor International

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