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Commercial Vehicle Group, Inc. (CVG) is a New Albany, Ohio-based global company that supplies the heavy truck, construction, agriculture, and marine industries with products through three primary divisions. The CVG Interior Systems Division includes subsidiaries National Seating, Trim Systems, and Cabarrus Plastics. National manufactures seat systems for heavy trucks, buses, and construction and agricultural vehicles; Trim Systems makes interior trim products for heavy trucks; and Cabarrus produces plastic components for vehicles as well as other industries. The CVG Electrical/Mechanical Division includes Sprague Devices, maker of wiper blade products and systems; MWC (Monora Wire), which manufactures electrical wire harnesses, power distribution systems, and panel assemblies; Prutsman Mirrors, producer of rearview and other mirrors and mounting supplies; and Roadwatch Safety Systems, provider of instrumentation that tracks air and road temperatures. CVG Structures Division, through Mayflower Vehicle Systems, manufactures complete commercial truck cabs. In addition, CVG sells after-market parts provided by its three main divisions through the OE Service/After Market Division, and does business internationally through the CVG Europe and Asia Division, which also includes U.K.-based KAB Seating, producing truck seating systems for the European market. CVG has been a NASDAQ-listed public company since 2004.
Origins Dating to 1983
The creation of CVG was funded by Canadian investment firm Onex Corporation, founded in Toronto in 1983 by Gerald Schwartz. A Winnipeg native and graduate of the University of Manitoba, Schwartz enrolled in the Harvard Business School, earning an M.B.A. in 1970. For the next several years he worked in investment banking, first in Europe and later on Wall Street, where he learned the art of the deal from corporate raiders Henry Kravis and Jerome Kohlberg. In the late 1970s he returned to Winnipeg to team up with attorney Israel Asper to found CanWest Capital Corporation. After a number of successful acquisitions, the two men fell out, leading to Schwartz moving to Toronto and launching Onex, relying on the same financial backer he had cultivated at CanWest.
Onex was structured as a holding company for a wide range of acquisitions, generally targeting undervalued companies. Schwartz proved creative at financing the deals, relying mostly on debt, but he also restructured the companies and often sold off parts to help offset the purchase price. In some cases, he simply flipped the company, quickly reselling it at a profit.
Around 1987 Schwartz began focusing most of his attention on opportunities in the United States. As part of this strategy, in 1989 he forged an alliance with Hidden Creek Industries, a Minneapolis buyout firm founded by S. A. (Tony) Johnson and Scott D. Rued after Johnson had been dismissed as chief operating officer of Pentair Inc., a Minnesota manufacturer. Prior to that, Johnson, an engineer with an M.B.A. from Stanford, had served as president and chief executive officer of Onan Corp., another Minnesota company, which manufactured electrical generating equipment. Onex owned 80 percent of Hidden Creek and Johnson the remaining 20 percent. Hidden Creek was formed to make acquisitions in the supply industry for automotive and commercial vehicle original equipment manufacturers (OEMs), who were looking to do business with fewer parts manufacturers. Onex hoped to acquire suppliers in order to gain size, achieve economies of scale, and fill that need for larger vendors. Some of the assets accumulated would one day form the core of CVG.
The first acquisition, completed in 1990 by Onex in conjunction with Hidden Creek, was Strasburg, Virginia-based Automotive Industries Inc., the North American auto parts operation of Tate & Lyle PLC. It provided molded plastic auto parts to North American auto manufacturing plants. Later in the year, Dura Automotive was formed to acquire two automotive parts suppliers from Wickes Manufacturing Company of Santa Monica, California: Dura Automotive Hardware and Mechanical Components, makers of parking brakes and other products. Dura became the largest supplier of parking brake systems in the industry, and the Hidden Creek partnership added to the business with the 1994 purchase of Orscheln Company. In 1993 Tower Automotive was acquired, providing structural metal stamping and other assemblies for OEMs. The Tower unit was then bolstered with further acquisitions over the next two years: Edgewood Toll and Manufacturing, Kalamazoo Stamping and Die, and Trylon Corporation.
Acquiring Trim Systems in 1997
The Hidden Creek partnership made its first foray into the OEM heavy truck market in 1997 with the acquisition of Trim Systems Inc., a Minneapolis maker of cloth, vinyl, and carpeted surfaces for truck interiors. It was placed under a company called Heavy Duty Holdings Co., with Onex owning a 41 percent interest at first. A year later Tempress Inc., maker of plastic parts for heavy-duty trucks, was added to the fold. Next, in March 2000 Onex acquired Commercial Vehicle Systems, a manufacturer of wiper, mirror, and control systems for medium-duty and heavy-duty trucks. Later in the year Bostrom PLC was acquired as well. Bostrom, based in the United Kingdom, owned National Seating Corporation, which manufactured truck seating units for the U.S. market, and KAB Seating, providing similar products in the United Kingdom and Europe.
A downturn in the U.K. truck market in 1999 had hurt Bostrom, leading to the sale to Onex. Similar conditions arose in the United States in the beginning of the new century, as declining economic conditions, as usual, were first to hit the trucking industry. Moreover, OEMs had overproduced in the late 1990s, so that when demand for new vehicles tailed off as trucking companies postponed capital improvements, the OEMs had a backlog of vehicles to sell before new parts would be needed. As a result, the companies acquired by Onex, with and without Hidden Creek, were adversely impacted. A number of changes were made in answer to this situation, including cost reduction and the implementation of lean manufacturing practices. Business picked up in the second and third quarters of 2002, and in 2003 there was a demand for new equipment to replace fleets that had been allowed to age. Moreover, demand for trucking services increased, as it became more of an economical alternative than rail.
In March 2003 CVG began to take shape when Bostrom Holding, Inc., formed in 2000 to acquire Bostrom PLC, acquired Commercial Vehicle Systems. Then, in May 2004, Bostrom Holding changed its name to Commercial Vehicle Group, Inc. and acquired Trim Systems. Other brands that were part of the company's portfolio included Sprague Devices and RoadWatch.
Serving as chairman of CVG was Hidden Creek's Scott Rued, and taking over as CEO was Mervin Dunn, who came to the company through Trim Systems, for which he was hired as president in 1999. Holder of a Master of Science degree in Operations from Eastern Kentucky University, Dunn had a great deal of managerial experience in the truck industry. He worked in the engineering and quality departments of heavy-lift truck manufacturer Hyster Corporation from 1980 to 1985, and joined Johnson Controls Automotive Group, an automotive trim manufacturer, from 1985 to 1988. He then spent the next decade at automotive parts maker Arvin Industries, and from 1998 until the time he joined Trim Systems he served as CEO of a heavy metal stamping company, Bliss Technologies.
About a week after CVG was formed, the company announced plans to make an initial public offering (IPO) of stock. The IPO, completed in August 2006, was lead managed by Credit Suisse First Boston and co-managed by Robert W. Baird & Co. Incorporated, Lehman Brothers Inc., and RBS Capital Markets Corporation. A total of $180 million was raised, of which $54 million was received by Onex, which reduced its stake to 24 percent. In addition, Onex received another $27 million from CVG to repay a debt. CVG also earmarked its share of the proceeds for use in making acquisitions and for product development. In July 2005 Onex would sell its remaining interest in CVG.
At the end of its first year as an independent company, CVG recorded sales of $380.5 million and net income of $17.5 million. It employed 1,850 people at plants in Indiana, North Carolina, Texas, and Virginia. CVG had loftier ambitions, however, and wasted little time in working toward achieving them. The company launched an expansion effort that was intended to provide some diversity in the very cyclical truck supply business by adding product niches as well as expanding its geographic reach. The company's acquisition strategy was simple, according to Investor's Business Daily: "It buys companies in high growth segments, then tries to make them more efficient by applying its quality control and manufacturing processes. CVG's production system is modeled after Toyota. It stresses constant improvement through the involvement of all employees in the manufacturing process." The company also looked to be the number one or number two manufacturer in the markets it chose to serve, and by expanding the number of market-leading truck interior products it had to offer, it built synergies, increasing its chances of selling more products to the same customer.
Mayflower Acquisition in 2005
CVG's first acquisition after becoming a public company came in February 2005 when it paid $107.5 million for Mayflower Vehicle Systems North America Commercial Vehicle Operations, part of the London bus manufacturer that had collapsed the year before. Based in Farmington Hills, Michigan, the Mayflower operation added a number of new products to the mix at CVG, including cab frames, sleeper boxes, and structural components, serving truck manufacturers such as International, Volvo/Mack, and Freightliner. In addition to its Farmington Hills facility, Mayflower operated plants in Detroit; Norwalk and Shadyside, Ohio; and Kings Mountain, North Carolina. The acquisition also brought with it Mayflower's seasoned management team.
In June 2005 CVG spent another $55 million to acquire Naperville, Illinois-based Monona Wire Corp. (MWC), a deal that added both new products and new markets. MWC manufactured electronic wire harnesses and panel assemblies for construction and specialty vehicles. CVG now had access to a new set of customers, including Caterpillar North America, Oshkosh Truck, and John Deere. CVG was already selling heavy plastic molded pieces to the lift truck industry, but now had a greater opportunity to sell some of its other products, such as seats, to this sector. In addition, MWC did business in the agricultural sector, in which CVG had virtually no penetration in the United States. Another plus was a major plant in Mexico that MWC operated. CVG had no facilities in Mexico, but could take advantage of MWC's world-class factory to produce cut-and-sew products and possibly mirrors, wipers, and other items. MWC also brought with it electronic engineering talent that CVG hoped to leverage in the development of products that relied on electronic controls, such as seats, mirrors, and wipers. Moreover, MWC did all of its business in North America, and CVG could use its global resources to sell MWC products in Europe and China.
CVG completed a smaller acquisition in August 2005, paying $12.1 million for Concord, North Carolina-based Cabarrus Plastics, Inc., maker of plastic molded parts mostly for recreational vehicles, a deal that expanded CVG's hard plastics business. As a result of continued growth of existing operations and the three acquisitions completed in 2006, CVG almost doubled its revenues in 2005 to $755 million, and net income nearly tripled to $49.4 million. Moreover, the price of CVG stock soared, up more than 50 percent since the company's IPO, and the company placed number 76 on Business Week's top 100 list of Hot Growth Companies. CVG continued to grow at a strong pace in 2006, as first quarter sales were up more than 50 percent over the previous year. To more effectively run the business, CVG was divided into its three primary divisions: CVG Interior Systems Division, CVG Electrical/Mechanical Division, and CVG Structures Division.
Principal Divisions
CVG Interior Systems Division; CVG Electrical/Mechanical Division; CVG Structures Division.
Principal Competitors
Accuride Corporation; Tomkins plc; Valeo.
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