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CEO says transformation prepped Remy International for IPO

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Greg Andrews

Talk to Remy International Inc. CEO John Weber for only a few minutes, and his enthusiasm boils over.

“Remy has re-established itself as one of the leaders of the auto industry,” Weber said in explaining why the Pendleton-based maker of starters and alternators decided the time was right to launch a $100 million initial public offering.

“We see opportunities across our industry to invest in new products, new geographies and, potentially, acquisitions.”
 

Weber Weber

Like any good CEO, Weber, 54, a well-traveled executive who joined Remy in 2006, is part salesman. But the preliminary prospectus the company filed with the Securities and Exchange Commission on March 25 shows he’s not spouting hollow rhetoric.

Remy’s transformation since 2007, when a $700 million debt load propelled it into bankruptcy court, could be fodder for business-school case studies of the 21st century.

In just five years, Remy has closed 14 facilities worldwide, a streamlining that shifted nearly all the company’s manufacturing to such low-cost countries as Brazil, China and Mexico. In that span, the company cut its work force 48 percent, to 5,700.

Weber makes no apologies that Remy, once one of Madison County’s big manufacturing employers, has shifted production outside the United States.

“When someone finds me a customer willing to pay more money for a product made in Pendleton, Indiana, I will be glad to put a facility in Pendleton, Indiana. But I haven’t found that customer yet,” he said.

That’s not to say Indiana will miss out on the benefits of Remy’s resurgence, Weber said. It just won’t land one of the massive manufacturing plants of yesteryear.

Remy employs 300 in Pendleton, 100 in Anderson, and another 76 in Peru. Most of the 476 workers hold engineering and professional posts that pay well, and the company is hiring more employees to support its growth.

Weber calls the growth remarkable. Sales surged from $911 million in 2009 to $1.1 billion last year. More important, improved efficiency bolstered the bottom line. Operating income was $106 million in 2010, compared with a loss in 2006.

The company already is No. 1 in North America for commercial-vehicle starters and alternators and for after-market starters and alternators used in light vehicles. Remy says its focus on original-equipment manufacturers, the after market and remanufacturing—rehabbing used products—positions it to pocket sales whether the economy is strong or weak.

In its SEC filing, Remy says results should continue to improve as global vehicle production rebounds and as the company continues to expand its already-substantial presence in such high-growth emerging markets as China and South America.

The company also is expecting big things from hybrid electric motors. It has spent $56 million since 2001 developing its hybrid capabilities, and in 2009, the Department of Energy awarded a grant matching up to $60 million of the company’s spending on hybrid commercialization through 2012.

Hybrid sales accounted for only 3 percent of sales in 2010, but the company is just getting started.

“With an emphasis on medium and specialty applications, we have over 50 vehicle projects in various stages of development,” Remy said in its filing. One of its most promising deals is with locally based Allison Transmission, with which it plans to produce hybrid transmissions for commercial vehicles by the end of 2012.

But David Menlow, president of New Jersey-based IPOfinancial.com, is underwhelmed. He noted that, even with Remy’s 2010 sales gains, the company’s revenue remains below what it was in 2006.

“It doesn’t look like it is going to move the needle on the investor scale because of the financials they are showing,” Menlow said. “People might give this company a very lukewarm start.”

The San Francisco-based blog Earth2Tech was more impressed, noting that Remy has exposure to the potentially lucrative hybrid motor market without betting the farm on it.

“Remy is one of the rare companies we’ve written about that’s shooting for an IPO and has a solid, growing and profitable business,” wrote Katie Fehrenbacher, editor of the green-technology blog.

Many details of Remy’s offering, including how many shares it would sell and at what price, have not yet been worked out. It’s also not clear whether some existing shareholders will use the IPO as an opportunity to at least partially cash out. The largest investor is Jacksonville, Fla.-based Fidelity National Financial Inc., which swapped its debt for equity during Remy’s 2007 trip through bankruptcy.

A large sale by insiders could dampen interest in the IPO, Menlow said. General investor sentiment toward the auto industry also would affect demand.

Last November’s General Motors IPO doesn’t serve as a ringing endorsement on that score. GM—which owned Remy before spinning it out in a 1994 leveraged buyout—went public at $33 a share, about $2 higher than shares now trade.•

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