German turnaround specialist Mutares to open office in Mumbai; eyes two-three acquisitions per year

Left: Robin Laik, co-founder and CEO of Mutares; Right: Nimit Mehta, Head of India and Middle East at Mutares

Mutares, the Munich-headquartered and Frankfurt-listed turnaround specialist that acquired an 80 percent controlling interest in Peugeot Motorcycles from the Mahindra group in 2022, is opening an office in Mumbai, senior executives of the firm told Moneycontrol in an exclusive interaction.

Apart from Peugeot Motorcycles, Mutares currently also has a presence in the country through SFC Solutions, which it acquired from NYSE-listed Cooper Standard and MoldTecs India. Both companies are specialist suppliers to the automotive industry.

Mutares differs from the typical private equity fund in that it is a listed company and does not raise funds like typical private equity does from third-party investors, which have a limited life. The firm specialises in buying underperforming companies and turning them around.

“The way Mutares works is we have around 250 people, 35 focused on M&A, and the rest of them, the vast majority, are operating people. When we buy an asset, what we look for is operating improvement potential and then we put our people in to change the company. We put in people (in areas) like finance, in HR, to work with the unions, procurement, supply chain, and manufacturing. They come in and they transform the company,” said Nimit Mehta, head of India and Middle East at Mutares.

Mehta added that within nine months, Mutares took SFC Solutions from a negative 8 percent margin to a positive 8-10 percent margin business. “It's not just about cost-cutting, it's about building sustainable growth. We brought in another $20 million of business that is now almost signed,” he said.

Talking about the Peugeot Motorcycles deal, Mehta said that it is a classic Mutares transaction where Mahindra saw Mutares as operating experts to bring about change. “And that's why they handed it over to us. We are almost done with the turnaround,” he said.

India plans 

According to Mehta, Mutares aims that within two or three years it will have an India portfolio of $2 billion to $2.5 billion in sales and, on average, two to three acquisitions a year.

“We are in the process of incorporating an office in Mumbai. And we are also evaluating a few deals,” said Mehta.

“We are already at around $100 million in revenue in India. And so, we have a running start. Hopefully, in the next six months, we will add another $200 million in sales in India through new acquisitions,” he added.

Mutares strategy 

Robin Laik, co-founder and CEO of Mutares, underlined the difference between the firm and a typical private equity firm.

“We are not a passive investor sitting somewhere in the Cayman Islands. We are the people on the ground. We are very entrepreneurial, hands-on and we put our people into these companies to drive the change,” said Laik.

“We are a listed company. On the equity side, we went for several capital increases, and on the debt side, we went for Nordic bond financing. To give you a figure, we have invested around $400 million into our portfolio today,” he said.

As a listed company, Mutares has two main KPIs (key performance indicators) that it communicates to the financial world, said Laik.

“One KPI that we have is our group sales and the second one is net income on a holding level. The net income on a holding level is the money we can distribute to the shareholders and related directly to the group sales,” he said.

Laik added that Mutares has three sources of profit, one being consulting fees.

“We have more than 160 consultants on board, and we send them into our portfolio, and we charge them and by doing so, we today have a consulting income of $100 million. Second is dividends from our portfolio and third is exit proceeds after the successful turnaround,” said Laik.

Sector focus

While manufacturing is Mutares’ most active sector, the turnaround firm also invests in several others

“Manufacturing is at the heart of a lot of things we do, it is our DNA. But we operate across four sectors. The biggest sector is automotive and mobility which is around $3 billion in sales globally,” said Mehta.

“Then we have engineering and technology and goods and services. The fourth sector is a new sector for us, which is retail and food,” he said.

Opportunities in India

Mutares sees a lot of potential deal sources in India, from family businesses looking to sell non-core assets to private equity investors looking to exit their investments and government divestments.

“India has a lot of family businesses. And it's really important for us to acknowledge that because that drives the type of deals that we are seeing,” said Mehta.

“Historically, finance and banking have been major deal drivers in India. But over the last three years, industrials, and auto components have picked up massively. And this is one of the reasons why we are very excited about coming to India because that's where we play, and we are seeing that pickup massively,” he said.

Mehta added that the Insolvency and Bankruptcy Code (IBC) will be a strong source of deals for the turnaround firm.

“IBC will be an active source. We believe we can benefit from IBC in the sense that we could get deals on discounts, we could get deals that have special situations, this is at heart is what we do. So IBC will benefit us," he said.

Around 70 percent of Mutares’ deals come from corporate carveouts, which could be pre-IBC, Mehta added.

“Another source of deals for us is private equity. And the rest comes from the government sector, where through the government privatisation drive, we get something at a discount. We will look at privatisation deals in India; that's one of our major sources of deals,” said Mehta.

Targets

According to Laik, currently, Mutares has a $100-million net income on a holding level with $5 billion in sales, and the firm’s target is to go to $10 billion in sales and $200 million in net profit by 2028.

“India is a growing market. There is a demographic dividend, and there is GDP growth, so the atmosphere is strong here. And we believe this has the potential to become one of our key markets,” said Laik.