1. Arkios Italy
Sliding Bearings Producer – Blind Profile
Transaction Outline
Our client (“the Group”), one of the main global players in the Sliding Bearings Production (or “Bushings”), and
in particular in the segment of “Composite Dry Sliding Bearings”* for applications both in Light Mechanics and
Oil & Gas, where it is one of the main 5 global players, thanks to its presence in Europe, North America, South
America and India. The client entrusts us with the task of seeking a strategic partner who may be able to join the
entrepreneur in the group growth, through a Capital injection in order to accelerate the internationalisation
process already started.
The Company
The Group, composed by a Holding which controls 3 Italian operational companies, 3 production subsidiaries in
US, Brazil and India, as well as sale branches in US and Germany, is among the top 10 players specialised in the
Rubbing Bearings sector, and among the top 5 global players (of which 2 Italian) in the Composite Dry Sliding
Bearings segment.
Holding
100% 100% 100% 100% 100% 100% 100%
Production Production Production Commercial
Production 1 Production 2 Operational 3
North America South-East Asia South America Germany
(Italy) (Italy) (United States) (India) (Brasil) (Germany) (Italy)
Production & Production & Production &
Production Oil & Gas Production for North Commercialization Special Contract
Commercialization Commercialization Commercialization
Segment America for Germany Work
Europe for South-East Asia for South-America
100%
Commercial
North America
(United States)
Commercialization
for North America
The Group was born in 1986. Thanks to the continuous research and innovation of product and to the capability in
developing new and innovative solutions ad hoc for new markets, the Group successfully became one of main
global players in the Sliding Bearing (or Bushings) niche, and in particular in the Composite Dry Sliding Bearing
segment, part of the wider market of Bearings (bearings in general, including ball bearings). The Sliding Bearings
are used in the most varied industries, like: Renewable Energies, Oil & Gas [which represents 25% of its sales in
valves/actuators], Light Mechanics (food & beverage, packaging machines, sealing and welding machines,
hydraulic pumps, machine tools), Heavy Mechanics (transmission tools, heavy equipment, etc.), Automotive and
Agricultural Machines.
* Dry Composite bushings are dry sliding plain bearings intended for radially loaded bearing arrangements and require a minimum of radial
space. They permit oscillating or rotational movement. They are appropriate for all applications where freedom from maintenance is required
or where lubricant starvation can occur
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2. Arkios Italy
With more than 220 employees all over the world and a
consolidated turnover of €21 million in 2011, today the
Group is the only Italian player in the sector, with
competitors mainly German and US, in a market which is
in continuous evolution, where the factors like the
technological research, the customisation, the capability
of offering very high solutions in short time, as well as
the availability of a varied stock, are the success drivers.
The structure of the Group, meets a precise requirement
of the market and it is composed as follows:
Production unit Italy 1
o Production and sale of “standard” and special Dry Composite Bearings for the European
and Italian market.
o Production of semi finished products (so-called straps), thanks to its own production
technologies, for the production of bearings in the subsidiaries in USA, Brazil and India.
Production unit Italy 2
o Production and sale of special bearings and slewing rings (Dry Composite Stainless Steel)
for clients from the Oil Gas and Renewable Energies sectors.
o Production upon request of special components, generally in composite Stainless
Steel/Nickel-Chrome Inconell-625/Teflon in few pieces (up to 5-10 pieces) with large
dimensions.
Production unit US o Production and sale of “standard” and special Dry Composite bearings in North America
for the American and Canadian Market.
o The Company – with the exception of productions for the Oil & Gas market – imports the
semi finished product (strap) from Italy and executes the ending phase of the process.
o The segment Oil & Gas, between the US production branch and that commercial one,
counts for circa 20% of sales.
Production unit India o It operates in the Dry Composite segment, where it is one of 2 producers directly
present in India and South East Asia (competitor of Saint Gobain). Today, the South East
Asia produces Bimetal only, now a commodity
o In the Valve (Oil & Gas) segment, which represents 30% of turnover, all the production
circle is local.
o All the new line of Polymer Bearings (see below) is produced in Brazil
o In the Mechanics and Automotive segment, which is growing and requiring innovation,
there is the need of producing integrally in loco (starting directly from the raw material,
no more from the semi finished product), therefore strong investments are necessary.
Production unit Brazil
o As for the Production US, it produces and sells for the South America market.
Germany Commercial Branch: it is the commercial branch for the distribution in the North European markets
and in particular Germany
USA Commercial Branch: it is the commercial branch which joins the Operational unit USA, due to a different
type of clients (distributors) and direct clients of Oil & Gas.
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3. Arkios Italy
Furthermore, the Group controls another Operational company, active in a synergic sector as sandblasting, zinc
coating and Teflon coating of different components.
The goal of the Business Plan elaborated by the Group is to have Operational units in USA, Brazil and India which
may be able to produce starting from raw materials (no more from semi finished products), in order to be quicker
in the development of orders/products, to save significant costs of transportation and duties, as well as to be
more independent, especially in Brazil and India which are countries with more potentialities of future
development. For this end, the Group needs additional investments to those already done in last years.
Main Economics 25.000
21.000
20.000
17.000
The Company has registered a Turnover of aprox. €21 15.000 15.500
million in 2011 (+30% vs 2010) and EBITDA of 12%, equal to 10.000
€2.3 Mio.
5.000
2.700
The banks debt (aprox. 40% of sales) are in line with the Net 0
2.250
Working Capital. -5.000
-400
The cash flow has been mainly used to finance the 2009 2010 2011
development of the subsidiaries abroad.
Sales Ebitda
The Company has invested on average 3-5% of sales per
year in R&D costs, counting them for the reference year
(/000 €) 2009 2010 2011 30/6/12 CAGR
without capitalising them. Therefore, according to more
Fatt Cons. 15,500 17,000 21,000 11,000 + 19%
correct accounting principles, EBITDA would be higher.
In the EBITDA calculation leasing fees are not separated (ex EBITDA -400 2700 2250 1.250
IAS 17), penalizing the real EBITDA (or EBITDAL). Ebitda % -3% 17% 12% 12%
Equity 3,500 3,900 4,200 4,900
Abstract Group Competitive Positioning (see below “Key Investment Rational”)
The Group has a significant competitive positioning in the growing segment of Dry Composite Sliding Bearings,
which has 5-6 competitors in the world, in a Market with strong entry barriers due to Know-How of production
and process, investments in Plants and in R&D, as well as capability of continuous innovation in rapid times, in
order to meet new needs of the market.
Its positioning is consolidated by the International presence in 4 continents, with production subsidiaries
independent from the point of view of production and sale, in Europe, North America, South America and South
East Asia.
Furthermore, the Group is the global leader for know-how and clients in the Oil & Gas sector, which is a sector
rapidly growing with large margins.
Hence, it is a Player – today still with small dimensions - in Europe and US as global leader in the niche of Oil &
Gas market (Valves and Actuators), with great opportunities of development thanks to new applications and
materials that the market requires, and to a policy of continuous research and development in order to meet the
requirements of the market which is rapidly growing, like (additional to that one of Oil & Gas) the market of light
mechanics, packaging, Food & Beverage etc.
Products and Applications
Products
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4. Arkios Italy
The Group is able to produce any kind of sliding bearings (cylindrical, conical, flanged and slewing bearings) made
of Composite Material (Bimetal + PTFE), Carbon/Glass Fibre, and Polymer, including – sector leader – Polymer for
technologically advanced applications and upon request, with large dimensions (also for 5-10 pieces) and as well
as with large margins for the Oil & Gas industry and the Renewable Energies market.
Hence, the Group works on technologically advanced products, differentiating itself in the niche of special
products, in composite (market value €800-900 Mio) and on specific products upon request.
Here below an example of products and their applications:
Composite Bearings (Bimetal + Modified Teflon)
Self-lubricated
Dry Sliding Bearings in 3 layers of composite material: (A) Coil
[inox/bronze/alloy steel/carbon steel/etc] + (B) sintered bronze
powder + (C) Teflon Lubrication is not needed, because it is
guaranteed by the internal layer of modified Teflon
o Stainless Steel - Carbon Steel - Bronze
o Sintered Bronze - Sintered Bronze - Sintered Bronze
o PTFE Modified - PTFE Modified - PTFE Modified
Composite Bearings (Bimetal+Acetal Polymer)
Pre-lubricated
As explained before. The internal indentations are useful to release
pre-loaded lubricant
Appropriate for all applications which require bigger friction in harsh
environment (heavy equipment, agriculture, etc)
o Stainless Steel - Carbon Steel - Bronze
- Water-repellent (no swelling) ------------------------ -----Sintered Bronze-----------------------------
- Wide range of operating temperature --------------------------- Acetal Co-Polymer --------------------------
Composite Bearings in Fiber
Dry sliding bearings, in Fiber [Glass Fibres, Carbon Fibres] coated of
Teflon fibres.
Appropriate for Special Applications, in technologically advanced
sectors in Light Mechanics.
------------------- Glass Fibres/Carbon Fibres ----------------------
- Excellent resistance to corrosive media, even to salt water -------------------------------Epoxy Resin -------------------------------
- Good insulator preventing passage of electric current ------------------------------ PTFE Fibres --------------------------------
Bearings upon request with Special Treatments
Dry sliding bearings in Stainless Steel/Inconnell-625, with special
treatments anti-friction with special PTFE film.
Appropriate for special applications with high/low temperature (Oil
& Gas) and resistance to chemical corrosion (Food & Beverage).
- Suitable for application with temperature (–188°C / +538°C) --------------------- Nickel-Chrome Inconell-625 ---------------------
- High chemical corrosion resistance and compatibility with fluids ------------Special anti-friction treatment (Special PTFE) ---------
Special Net Bearings
Bearings made of metal net, created thanks to a particular process
with application of modified PTFE film
----------------------- PTFE Modified Belt ---------------------------
-------------- Stretched grid in Bronze or Steel --------------------
Polymer Bearings
Bearings in thermoplastic material and composite fibres,
characterised by lightness, duration and cheapness.
Particularly suitable for applications of Light Mechanics (Food &
Beverage, packaging machines, sealing and welding machines,
machines tools).
- Underwater applications/Low moisture absorption
- Minimized wear and excellent service life
- chemical resistance ---------------------- Thermoplastic material ----------------------
-------------------------- Solid lubricants ----------------------------
------------------------------- Fibres ------------------------------------
The product – suitable for very different contexts – is a technologically high product, subject to continuous
innovation and new usages, and it requires a production process extremely complex, where know-how and
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5. Arkios Italy
patents represent a key success factor; hence, in order to maintain the technologic leadership in the niche where
it is active, the Group bore significant investments, in particular in the production of the semifinished product.
Applications
Here below some possible usages of the product:
Valves Actuators Windpwer Hydroelectric Packaging Machines Food & Beverage
Food Processing Sealing Machines Machine tools Power Transm. Presse Idrauliche HeavyEquipment Automotive
The Market
The Sliding Bearings (or Bushings) market is estimated to be worth circa € 1.5-2 billion (with circa 8-10 players in
the world); such a market is a segment of the wider Bearing market which would have achieved a dimension of
€34/37 billion1.
40% of the demand comes from the Industrial sector: (A) Light Industry: food & beverage, packaging machines,
sealing and welding machines, hydraulic pumps, machine tools, textile machines, etc…); (B) Heavy Industry: heavy
equipment, power transmission tools, aviation industry, construction equipment, presses, etc.) and (C) Oil and Gas,
Renewable Energies and Aerospace, this sector is rapidly growing with high margins.
30% comes from the Automotive sector (historical sector). The remaining 30% from distributors, which
intermediate in their turn this part of the production for 75% of their total to the industrial market.
World Bearings Market Report (Freedonia) estimates an annual growth of 8% for the global demand of Bearings,
despite the downturn of the Automotive market, just thanks to the new applications and technological innovation
for new applications, in sectors with strong growth. This growth will be particularly pushed by the Emerging
Economies: India (+17% in 2001), Brazil (+8%) and China, especially for the traditional Automotive market and
Heavy Mechanics markets, while in Europe and US the growth will be driven by the Packaging, Food & Beverage,
Light Mechanics, in addition to the Energy sector (Oil & Gas and Renewable Energies).
Furthermore, the Sliding Bearings sector is characterised by important niches with high margins.
In particular the Sliding Bearings market is distinguished by players operating in 2 very different segments:
(A) Bimetal [carbon steel/bronze powder]
Such segment of Bimetal is now a commodity, with low added value, where the most part of players are concentrated.
(B) Composite (so-called “Dry Composite Bushing”): steel/sintered bronze powder/modified Teflon.
The Composite segment (Market Value equal to circa €600-800 Mio) has few players (5-6) among which our client, since continuous
investments in R&D and a consolidated know-how are needed.
A further segmentation has Sliding Bearings producer with (A) standard production only operating in the historical
Automotive market and Distributor market, and (B) a limited number of producers who produce products ad hoc
and non-standard for the sophisticated market of Oil & Gas. Our client actually is the only one in the world for
this market and in particular for the big producers of Valves and Actuators (all of them are its clients).
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6. Arkios Italy
Investment Rationales
Here below the possible rationales for an investor in order to value this opportunity:
Market
Growing market/niche: the segment where the Group operates (Dry Composite Sliding Bearings) is growing,
thanks to the demand of new application in growing markets (Oil & Gas, Packaging Machinery, etc)
o , the segment Dry Composite (market value circa €600-800 Mio) is a “Niche”, growing and strongly
concentrated among 5-6 competitors,
o Market with strong entry barriers, due to production and process Know-How, investments in Plants and R&D,
capability of continuous innovation in rapid times, in order to meet new needs of the market.
New applications demand with high technological content and in new materials: Composite Fibers, Polymers,
Special Treatments for Food & Beverage, Packaging, Light Mechanics and Oil & Gas [valves/actuators]
o Growing markets, like Food & Beverage, Packaging, as well as Oil & Gas (Valves, Actuators) and Energy, require
innovative solutions with high technological content;
o The undifferentiated market of Bimetal, now a commodity, is linked to few applications with little added value,
while Composite will substitute Bimetal;
o The Market, due to cost/logistics problems, requires more and more the production of such components in
loco, especially in the emerging countries like China, India and South East Asia, Brazil and South America, with
a clear advantage for those producers who are already present in these markets in terms of both production
and sale. It is clear that the possibility to move part of production in loco may be a differentiating and
competitive factor.
Differentiation of producers for target market
The players, historically developed to supply the Automotive market (Historical market), are differentiated and
specialised for product categories and target markets:
o The main multinationals like SKF, INA-Schaeffler, Glyco-Federal Mogul, Saint Gobain are mainly competing in
the segment of “standard” Composite for Automotive, Nautical and Heavy Equipment.
o The sector of “standard” products requires capability of having wide variety, great financial capability in order
to maintain the stock
o The segment applications for the Oil & Gas sector (Valves, Actuators, etc) requires customisation, reply timing,
production flexibility and capability of developing ad hoc solutions; today the market has only 3 players in the
world, one of which is the Target company.
o As for new materials, also here, different players are specialising on special applications
- continued -
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7. Arkios Italy
Company
International presence in 4 continents: Europe, North America, South America, India with abroad production
subsidiaries.
o The Group is present in US (2006), India (2006), Brazil (2006), with 3 factories which supply local clients and/or
local multinational branches who require the production according to local standards.
o The production subsidiaries have their own clients, with their own commercial structure and they are
independent, excluding the supply/purchase of the semifinished product (which is the part with added value,
where know-how and investments are needed) which is produced in Italy and elaborated in loco
o Hence, the Target Company has a commercial structure now consolidated and has already placed for 5 years a
“flag” in the strategic countries, where the Subsidiaries have interesting growth rates of sales.
o Besides, the Group has 2 additional branches abroad, in Germany and US:
Global leader for know-how and clients in the Oil & Gas sector: Player – today still with small dimensions - in
Europe and US as global leader in the niche of Oil & Gas market (Valves and Actuators)
o The Target Company is indeed the global leader in the niche of applications for the Oil & Gas sector, thanks to
its know-how and to consolidated relationship with the main producer groups of valves and actuators
(Cameron Valves, Valvitalia, Valbart, Flow Control Technologies, OMS, Air Torque, ATV, Virgo, etc…)
o The big corporations of the Sliding Bearings market (SKF, INA Schaeffler Group, Glyco-Federal Mogul, Saint
Gobain), concentrated on standard products, are not present in the specific niche of Oil & Gas, since they are
not able to entry in this market which needs customization, reply timing, production flexibility (the standard
market instead requires the capability of having wide products variety, financial capability in order to
maintain the stock, not the flexibility and capability of developing new ad hoc solutions.
o Non-replicable know-how is proved. There are other 2 players operating in this niche, all over the world.
Vertical Integration: one of 5-6 players vertically integrated, with know-how to produce the semi finished
product
o The big corporations are NOT vertically integrated and do not produce starting from Raw Materials, but
by buying the semi finished product on the market. (so-called Strap), which represents – in terms of
added value – the strategic component.
o The semi finished production represents a strategic barrier to entry for competitors in the Oil & Gas
segment, because it allows to develop ad hoc solutions for valve producers, with products according to
particular specifications and standards requested by clients in this sector.
o Know-how and investments done for the production of semifinished products are not easily replicable
and represent the main asset of the Target Company.
o The capability of producing ad hoc solutions also in Inox Steel represents an additional distinguishing
feature of the Company
Production flexibility, high quality and service to the Client: sales are well distributed between “standard”
production (Automotive, Heavy Equipment, traditional mechanics) and tailor-made production with high added
value
o Production flexibility: capability of exploiting as best the production capability, distributing the
production between standard Bearings (from the prospective of service, in stock), semi-standard ones
and special ones, these latter upon request of clients (orders), also for very little quantity (5-10 pieces)
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8. Arkios Italy
o Quality: the Group has always collaborated with clients in the design of the production plants in order to
supply them the best product (quality, resistance, etc). The Group can count on its own internal
department of quality control, where each product is tested in extreme conditions and the test results are
shared with the clients.
For further information about this transaction, please contact
Paolo Cirani Alberto Della Ricca Andrea Rossotti
Partner Partner Senior Analyst
+39 335.68.40.737 +39 347.22.03.181 +39 339.86.98.674
paolo.cirani@arkios.it alberto.dellaricca@arkios.it andrea.rossotti@arkios.it
www.arkios.it www.arkios.it www.arkios.it
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