The auto industry is on fire, and John Stewart is standing by, prepared to extinguish and salvage parts of it.
Stewart, a former manager at Toyota’s big auto assembly plant in Georgetown, Ky., has been quietly buying up distressed plants and companies over the past few years as a private equity investor with a strategy.
Last week, Stewart struck boldly: Grouper Holdings, a subsidiary of the investment company he co-founded, MiddleGround Capital, stepped in with $218 million in cash to buy the assets of Shiloh Industries of Valley City, in Medina County. Shiloh is a multifactory mainstay of U.S. metal stamping, aluminum parts and carbon fiber that has been making a name for itself marketing itself as a “supplier of lightweighting.”
“I’ve been watching Shiloh for years as an investor,” Stewart last week told Automotive News, a sister publication of Crain’s Cleveland Business.
Stewart made his play on Aug. 30, when Shiloh — notably, a General Motors and Tesla supplier that has been beaten down by the coronavirus pandemic and was swimming in $575 million in debt — filed for Chapter 11 bankruptcy protection.
He blamed Shiloh’s predicament on acquisitions and mergers paid for with debt. The resulting loss of liquidity is a common struggle around the auto parts manufacturing world these days, especially after the pandemic shutdown drained many suppliers of cash reserves.
That’s a bad situation for suppliers — but it’s an opportunity for Stewart.
“Unfortunately, a lot of people in the industry have done the same thing. And this is what we think is just the beginning of many of these types of transactions that we’re going to see over the next six, 18 months.”
Only four weeks earlier, Stewart and his investment firm also stepped in to buy control of Dura Automotive, another established U.S. supplier that had worked itself into financial straits.
After evaluating more than 1,000 potential businesses, MiddleGround acquired 75% ownership of Dura, the Auburn Hills, Mich.-based supplier of driver control systems, lightweight metal vehicle frames and battery trays. Dura filed for Chapter 11 bankruptcy protection in October 2019.
MiddleGround funded the transaction 100% with equity, invested more than $60 million in cash to Dura’s balance sheet and closed the deal with Dura holding less than $20 million in debt, Stewart said — “unheard of” for a company with $572 million in North American automaker parts sales in 2018, he added.