Why a Japan conglomerate is spending $1.1 billion to buy a Tier 2 interiors supplier

Sage Automotive Interiors uses circular knitting machines to produce fabrics for numerous auto brands globally.

UPDATED: 7/19/18 3:14 pm ET – new story

Japan’s Asahi Kasei Corp., as part of a long-term strategy to triple its automotive business, said it plans to acquire U.S. interiors supplier Sage Automotive Interiors Inc. in a deal valued at $1.1 billion.

Sage is a Tier 2 supplier of seat fabric and other automotive interior applications with global reach at numerous auto brands.

The acquisition “makes a lot of sense,” CEO Dirk Pieper of Sage Automotive told Automotive News on Thursday. Pieper said executive management will remain unchanged after the acquisition.

Asahi Kasei is already a Tier 3 materials supplier to Sage Automotive, Pieper said. “They are very product oriented,” Pieper said. So is Sage Automotive, but he said as a Tier 2 supplier, Sage necessarily also has a strong marketing and sales presence.

Wide range

“We’re a Tier 2 in that we physically deliver our product to the Tier 1, but we’re directed by, and selected by, OEMs,” he said.

In addition to automotive, Asahi Kasei makes fibers and textiles for other industries, plus construction materials for homes, health care products, as well as chemicals and electronics.

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Pieper said Sage Automotive could expand its lineup with products from the new parent company. Conversely, he said Sage Automotive could provide Asahi Kasei with closer access to automakers.

The deal is subject to regulatory approval.

Major mover

Asahi Kasei said the total acquisition price was about $1.1 billion, including about $700 million cash. The Tokyo-based fabric manufacturer is looking to expand its automotive sales to about $2.7 billion by its fiscal year 2025 ending March 31, from about $900 million in fiscal 2015.

Sage Automotive sales in 2017 were $475 million, up from $416 million in 2016, according to Asahi Kasei.

The seller is private equity investor Clearlake Capital Group in Santa Monica, Calif. When Clearlake bought Sage Automotive in October 2014, Clearlake said Sage Automotive was the second-largest automotive textile supplier in the world. Those terms were not disclosed.

Private equity

Clearlake said that under its four-year ownership, Sage Automotive acquired suppliers Miko and Apollo in Italy, and increased its investment in Sage Wuhan, a joint venture in China to drive more rapid growth in Asia.

In addition to five locations in the United States, Sage Automotive has operations in Italy, Poland, Romania, Brazil and China. It employs about 2,200 people.

Sage Automotive’s roots are 70 years old. It entered the auto industry in 1948. Before it was spun off in 2009, what became Sage Automotive was part of fiber and chemical manufacturer Milliken & Co.

Customer base

Besides seating surfaces, Sage Automotive fabrics are also used for door panels and headliners. The company also provides design services.

Sage Automotive is a specialist in high-performance automotive interior fabrics, such as synthetic microfiber suede, made primarily from recycled polyester fiber. Its end customers include the Jaguar F-type, the Mercedes-Benz AMG GT and the Mercedes-Benz CLA AMG, the company said.

Brands and automakers that use Sage Automotive products also include Honda, Toyota, Hyundai, Kia, Ford, General Motors, Chrysler, Nissan, Mazda, Volkswagen, Fiat, Suzuki, BMW and others, the company said.

Pieper said that when it was spun off, about 93 percent of Sage Automotive sales were with North American-based manufacturers, compared with about 52 percent today.

He said: “We have diversified worldwide as the Detroit 3 have diversified worldwide.”

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