Adviser Tells Private Investors in Auto Industry to Hang Tough
By William Diem WardsAuto.com, Aug 13, 2008 6:14 PM

TRAVERSE CITY, MI – Private investors own 30%-35% of the supplier industry and one-third of the Detroit Three auto makers, and those investors could become “filthy rich” if they can get through the next 18-24 months, an investment banker tells attendees at the Management Briefing Seminars.

Justin Mirro, managing director and head-Automotive and Transportation Investment Banking, Moelis & Co. in New York, says investment bankers have two roles: They raise capital and they advise companies on how to manage that capital in order to receive a return.

“We are a financial planner for a corporation,” Mirro says. “(We play) the same role as an individual’s accountant, lawyer, stockbroker or realtor. We raise capital.”

Besides selling and buying assets, investment bankers advise company boards on subjects such as management selection, joint ventures and restructuring, which can be as simple as changing the terms of a loan or going into Chapter 7 bankruptcy to liquidate assets.

Some investment bankers are capital focused, such as JPMorgan, Merrill Lynch and Lehman Brothers, while others such as Moelis & Co. focus on advisory roles.

Moelis, formed less than a year ago, already is ranked No.9 this year, based on the number of mergers and acquisitions it has handled.

Mirro works mainly with companies making fabrics, castings, metal forgings and stampings, but last year he helped a consortium led by Prodrive Ltd., a motorsport company headed by racer and businessman Dave Richards, acquire Aston Martin from Ford Motor Co. for $950 million.

Justin Mirro of Moelis & Co.

Hedge funds and private-equity firms both invest in corporations, but with differing approaches. Private-equity likes to have control, fix the business and sell it in five-seven years at a profit. Hedge funds usually look for a return in six months to four years and are often willing to be minority stakeholders.

Mirro cites the experience of Wynnchurch Capital of Chicago that worked for months with Arvin Meritor Inc., which wanted to spin off its division that makes axles for military vehicles because it no longer was core to its business.

AxleTech International Inc. was created, and Wynnchurch helped it become a standalone business focused on the military, growing EBITDA by 20 times and capital return by 35 times before it was sold to Carlyle Group.

That kind of return is possible in the auto industry now, Mirro says, because in the words of investor Warren Buffet, “You can’t buy what is popular and do well.”

If private-investment firms can make it through the next 18-24 months, Mirro promises they will come out the better for it and even could become “filthy rich.”