Autocam Corporation

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Autocam Corporation

4070 East Paris Avenue, SE
Kentwood, Michigan 49512
U.S.A.
Telephone: (616) 698-0707
Toll Free: (800) 747-6978
Fax: (616) 698-6876
Web site: http://www.autocam.com

Majority Owned Subsidiary of Titan Acquisition
Corporation
Incorporated: 1988
Employees: 2,100
Sales: $250 million (2002 est.)
NAIC: 332116 Metal Stamping

Autocam Corporation manufactures high-precision automotive fuel injection and brake parts, as well as computer components and medical devices, at its home base near Grand Rapids, Michigan, and in several other parts of the United States and at locations in Brazil and France. The company’s largest customers include General Motors Corporation (GM) unit Delphi Automotive Systems, TRW, and Bosch. Autocam has been headed by James C. Kennedy since he bought the firm from Autodie, Inc. in a leveraged buyout in 1988. Controlling interest in Autocam was acquired by Titan Acquisition Corporation in 2000, but Kennedy retains a sizable stake.

Beginnings

Autocam began its existence as a subsidiary of a Grand Rapids, Michigan-based automotive die and mold manufacturing company named Autodie, which was founded in 1963 by Joseph N. Spruit. Autodie supplied the automakers of Detroit, slightly more than two hours’ drive away, as well as other companies that used dies and molds in the manufacturing process. Spruit was a believer in keeping up with technology and was one of the first in his industry to embrace computer-aided design and manufacturing in the late 1970s. The successful company formed a subsidiary called Autocam in 1982, which manufactured small, high-precision metal-alloy parts such as automotive fuel injectors using turning, grinding, and milling processes. Autodie subsequently enjoyed a successful public offering in 1985. A slowdown in orders caused business to fall off in 1987, however, at which point Spruit decided to sell off the ailing Autocam division. A ready buyer was found in Autodie’s chief financial officer John C. Kennedy, who had graduated from the University of Detroit at the age of 20 and had been hired as Autodie’s CFO in 1982 at the age of 23. Kennedy borrowed heavily to finance the leveraged $6.5 million deal, which was completed in February of 1988.

Autocam’s first year saw the newly independent company tally sales of $23.3 million, slightly less than a third of its former parent firm’s annual figure. This amount was more than double what Autocam had taken in a year before, and profits reached $1.6 million, well up from the previous year’s loss of $1.9 million.

Kennedy soon moved the firm to a new location in the Grand Rapids suburb of Kentwood and invested $20 million in computerized manufacturing equipment to facilitate production of large quantities of the firm’s high-precision parts. GM was Autocam’s largest customer, with some 15 different fuel injector components made for the carmaker accounting for 64 percent of sales. Fuel injectors were rapidly replacing carburetors in vehicles because they yielded greater gas mileage and reduced emissions. Precision parts produced for computer disc drive maker Hutchinson Corporation made up another 30 percent of Autocam’s business.

In 1990 the company formed a joint venture called Emerald Compressor Systems with ROVAC Corporation of Rochdale, Massachusetts, to manufacture an automotive air conditioning system that was free of chlorofluorocarbons (CFCs), which were considered harmful to the earth’s ozone layer. ROVAC would handle the design, and Autocam the manufacturing, with both sharing in the profits. Emerald began by targeting consumers in environmentally conscious areas with so-called “aftermarket” air conditioners, hoping later to make sales to the major automakers themselves.

Initial Public Offering in 1991

Seeking to pay down the company’s heavy debt load, in 1991 Autocam went public. A total of 29 percent of the firm’s stock was offered, with Kennedy retaining more than 60 percent, and Edward W. Hekman, head of product development, holding 6 percent. A total of 800,000 shares of stock were offered at $10 each; the price rose to $13 a share by the end of the first day on the market and kept climbing over the next few months.

During this period Autocam was seeking ways to diversify so it could reduce its heavy reliance on GM for business. The company began making parts for anti-lock brakes and airbags, although these as well were sold mostly to GM at first. The emphasis on new types of components, which were much in demand because of the industry’s renewed focus on making safer, more efficient vehicles, helped Autocam avoid, for the most part, the U.S. economic slowdown taking place in the early 1990s. During the summer of 1992 the company began construction on a 30,000-square-foot expansion to its Kentwood manufacturing facility, at a cost of $1 million. An additional $7.7 million was earmarked for purchasing manufacturing equipment to use in the new space.

Another diversification move took place in the fall of 1992 when Autocam purchased a Fremont, California-based maker of precision medical and electronic components, Rehrig Manufacturing, for $2.9 million. The acquisition gave the firm access to the medical market, which Autocam had been unable to penetrate on its own, through Rehrig’s production of small precision metal-alloy parts used in surgery and related applications. Rehrig had annual sales of $5 million.

Autocam’s growth continued in 1993, with annual sales hitting $36 million. Profits were down slightly, however, due to pricing pressure from GM, which now accounted for 76 percent of the company’s revenues. Rehrig-produced medical components constituted a small but growing portion, accounting for 8 percent.

In 1994 Autocam signed an agreement with GM to supply the automaker with a specific fuel injector part for the “life of the product”—a move that decreased the firm’s vulnerability to GM changing suppliers if it found a cheaper source for the item. The year was another good one, with sales increasing to $47.2 million and profits to $4.76 million.

CEO Kennedy, who also owned Conway Products Corporation, a maker of spas located next door to Autocam’s headquarters, was an active participant in his local community. He oversaw the donation of Autocam money to fund a Waste Water Reduction and Management Program at Grand Valley State University and also served on the boards of several healthcare agencies, the Grand Rapids Urban League, and the state of Michigan Transportation Commission. He later took part in efforts to improve Michigan’s business tax laws.

Seeking Ways to Expand at the End of the 20th Century

The company’s growth continued during 1995 and 1996, with sales to the medical sector, particularly overseas, increasing at a steady rate. The year 1996 saw Autocam invest $9.2 million in new production equipment to enable it to meet the increased demand for its products. The company’s growth also was highlighting the need for more manufacturing capacity, and Kennedy began looking for new sites on which to build. After initially considering the southeastern United States, in particular South Carolina, the focus shifted back to Grand Rapids, where a tax-free “Renaissance Zone” had been designated to offer companies incentive to build. After buying two acres there for a new facility, Autocam backed out of the plan upon discovering that there were too few skilled machinists available in the area to staff the operation. Deciding to stay in Michigan, the company subsequently began construction of a plant in Marshall, located halfway between Grand Rapids and Detroit. Twenty-one workers who commuted to Kentwood from that area would be shifted to the new facility, with a number of recently laid-off machinists discovered in nearby Jackson helping round out the staff. The state of Michigan contributed $8.8 million in tax credits to cement the deal.

Although sales were up for 1997, profits were again reduced, a result that was attributed to late deliveries of new manufacturing equipment, some of which had proven faulty. The company subsequently had been forced to use alternate methods to fulfill orders, which raised the production cost per unit. Autocam’s diligent efforts to satisfy its customers did not go unrecognized, and the firm was named a GM “Supplier of the Year” for several years running.

The year 1997 also saw Autocam purchase The Hamilton Group, Inc., a maker of anti-lock brake parts for the auto industry, which had factories in Gaffney, South Carolina and Dowagiac, Michigan. The $18 million acquisition gave the company a firm with approximately $15 million in annual revenues and 110 employees. At the end of the year another purchase was made, the company’s first one outside of the United States. For $10.2 million Autocam bought a controlling interest in Qualipart Industria E Comercio Ltda., a Brazilian maker of fuel injection components with annual sales of approximately $15 million. Commenting on the purchase, CEO Kennedy stated: “This acquisition is consistent with one of our strategic objectives—becoming a dominant, world-wide manufacturer of fuel systems components.”

That intention was reinforced in October of 1998 when a French company, Frank & Pignard, was acquired for $53 million plus $20 million in debt. Frank & Pignard was a manufacturer of braking, fuel injection, and steering components for the auto industry, with annual sales of $82 million. Following the purchase the company upgraded the French firm’s manufacturing facility, which resulted in greater production efficiency. After the improvements, Frank & Pignard’s staff was reduced by 10 percent. Autocam’s income was continuing to show growth at this time from the addition of the new acquisitions’ earnings, but sales were impacted negatively by a strike at GM, which caused a slowdown in orders.

Company Perspectives:

Our customers answer to the global marketplace. We give them a stronger voice.

In early 1999 Autocam announced that it would be closing its South Carolina plant and moving its operations to Dowagiac, Michigan. The move was expected to save $750,000 annually. The company’s bank account had nearly been depleted by the Frank & Pignard acquisition, and in the fall rumors began to float that Autocam was seeking a deep-pocketed buyer who could help fund further growth. The rumors were verified in November when it was announced that Titan Acquisition Corporation, a unit of Aurora Capital Group of Los Angeles, would pay $18.75 a share for a majority interest in the company. CEO Kennedy, who would remain on the job, kept about two-thirds of his holdings. The deal cost Titan approximately $230 million, with Kennedy pocketing $27 million of that amount. Aurora specialized in investing in well-run manufacturing companies, which were typically allowed to retain their autonomy. Commenting on the sale, Kennedy stated, “Consolidation is occurring in the industry at a very rapid rate right now. Today, Autocam is a leader. What we want to do is make sure Autocam remains a leader.” In early 2001 Autocam acquired another French precision auto parts maker, Bouverat Industries.

As part of Titan Acquisitions, Autocam remained one of the top makers of precision automotive and medical components in the United States, South America, and Europe. Demand for the company’s parts continued to be strong as automakers increasingly focused on safety and fuel efficiency, both of which were aided by items made by Autocam.

Principal Subsidiaries

Autocam International Sales Corporation; Autocam Foreign Sales Corporation (Barbados); Autocam International, Ltd.; Autocam Acquisition, Inc.; Autocam Laser Technologies, Inc.; Autocam-Pax, Inc.; Autocam South Carolina, Inc.; Autocam do Brasil Usinagem Ltda. (Brazil); Autocam Europe B.V. (Netherlands); Autocam France SARL (France); Frank & Pignard SA (France); Bouverat Industries (France).

Principal Competitors

Dana Corporation; Delco Remy International, Inc.; Hilite Industries, Inc.; Metaldyne Corporation; Dura Automotive Systems, Inc.

Key Dates:

1982:: Autocam is formed as a subsidiary of Autodie to make high precision auto parts.
1988:: James C. Kennedy purchases Autocam for $6.5 million in a leveraged buyout.
1991:: The company goes public, issuing 800,000 shares on the NASDAQ exchange.
1992:: Autocam acquires Rehrig Mfg., maker of medical and electronic parts.
1997:: The company buys The Hamilton Group and Qualipart of Brazil.
1998:: Frank & Pignard of France is acquired for $53 million.
2000:: Control of Autocam is purchased by Titan Acquisition Corporation for $230 million.
2001:: Bouverat Industries of France is acquired.