Blackstone may team up with Mahle to buy Hanon Systems

The Blackstone Group is in discussions with German automotive parts manufacturer Mahle GmbH to make a joint bid for South Korea's Hanon Systems Corp., a leading heat pump systems supplier for carmakers, according to investment banking sources on Thursday.

As a shortlisted bidder for a 70% stake in Hanon, Mahle is now trying to attract the US private equity giant as its investment partner for what is set to be this year's largest acquisition deal in South Korea. No further details about their talks were immediately available.

Other bidders include The Carlyle Group and Bain Capital, after the strong domestic candidates -- LG Group and the company’s former owner Halla Group -- pulled out.

But France’s automotive supplier Valeo SA, earlier reported as one of the candidates, denied its participation in the bidding.

"We have not conducted any due diligence and we have not submitted any bid," a Valeo spokesman said in an emailed note to Market Insight on Thursday. 

Shortlisted bidders, which are not fully identified, are now undertaking due diligence on Hanon. But with the sell-side leaving the door open for new bidders, other PEFs are preparing to enter the race, or have just launched their bids, the sources said.

A final bidding round is expected to take place later next month or early September.

The 70% stake on offer is held by Seoul-based private equity firm Hahn & Co. with 50.5% and Hankook Tire & Technology Co. with another 19.5%.

The stake is expected to bring in over 6 trillion won ($5.3 billion), including a premium for management rights, based on its current market value of 8.7 trillion won.

BLACKSTONE'S COMEBACK?

Since closing a 1.1 trillion won ($1 billion) buyout of Geo-Young Corp., a Korean medical goods wholesaler and a stake purchase in Starfield Hanam, South Korea's largest shopping mall, in 2019, Blackstone has been hardly visible in country's M&A market.

But the US investment firm is now seeking to expand investments in the country, working to open a Seoul office again.

Hanon is the world’s second-largest thermal management systems supplier for automakers with a 13% market share, after Japan's Denso which controls 27% of the market.

Germany’s Mahle is the fourth-largest player with an 11% share, just behind Valeo's 12% share. If it succeeds in acquiring Hanon, Mahle will be able to challenge Denso’s leadership.

Thermal management systems, once treated as non-core parts of combustion engine vehicles, are emerging as key components for electric vehicles. They help improve the mileage and fuel efficiency of EVs.

Alongside its steady cash flow, the high entry barriers to the auto parts industry add attractiveness to Hanon. This year, the company is forecast to report 1 trillion won in earnings before interest, tax, depreciation and amortization.

While the vast majority of Hanon’s revenue previously came from Hyundai Motor Co. and Kia Corp., the company has successfully widened its client pool to include Tesla of the US and Volkswagen of Germany.

By Jun-ho Cha and Chae-yeon Kim