March 28, 2024

The transmissions specialist, Renk AG, will likely be sold in the coming months. Volkswagen announced a round of demergers and sales proposals earlier in the year as part of an anxious strategy to ready itself for reorientation towards electric car production. Renk is expected to be one such asset sale that could streamline the group’s portfolio. Renk is a successful engineering firm with multiple divisions, fuelling discussion on the exact nature of the transaction.

What does Renk do?

While the Bavaria-based Renk is respected for its military product capabilities, it also produces a huge number of solutions in civilian sectors. Company capabilities centre around transmissions for engines, with its products setting benchmarks in maritime, military, and special installation fields.

Through its three departments – Slide Bearings, Special Gear Units, and Standard Gear Units – Renk creates drive train components for the renewable energy sector, in wind turbines and hydro plants; for the oil and gas and the steel mining industries; for test equipment in the aviation industry; as well as for the shipping and transportation industries.

The company touches a multitude of sectors and has built a reputation for outstanding quality and precision in its products, underpinned by world-leading expertise. This has led to many international contracts, with recognition being drawn in particular for Renk’s unparalleled solutions in hybrid drive transmissions for the maritime sector, armoured vehicle power packs for the defence sector, and for possessing one of the largest state-of-the-art transmission testing facilities in Europe.

Healthy growth and development

Renk’s results have been impressive, both financially and in what it has achieved from a technical perspective. In the company’s 2018 annual report, it was demonstrated that the past five years have been strong years for the company’s development.

Last year saw sales increases of 23 percent in the company’s vehicles transmissions department, with overall flat earnings before tax of €62m. Renk’s operating return on sales was 12 percent – double figures which the company expects to repeat in 2019. Investment analyst describe its balance sheet as flawless.

Renk has also been diversifying its holdings, first acquiring Hortsman, the British tracked and armoured vehicle suspension company. This will provide gains in the group’s heavy vehicle capabilities.

“By acquiring Horstman, RENK is continuing to implement its internationalization strategy and to expand its systems expertise. Horstman, like RENK, is also a well-established and innovative technology leader in its field,” said Florian Hofbauer, Renk’s CEO.

More recently the group acquired a minority stake in Modest Tree, an award-winning 3-D modelling and training company, through which Renk aims to develop digital communications and training solutions.

“Together with Modest Tree, we will provide state-of-the-art training and support services while exploring other new opportunities to meet the future needs of our customers”, Hofbauer said.

The Renk sale

When the sale was first announced at the start of the year, Volkswagen management were vague about the exact nature of the proposed transaction. The sale, like that of Ducati and MAN, was already attempted in 2017, however, it hit an impasse due to workforce resistance. This could be one reason behind the neutral messaging in the announcement made by Volkswagen’s CEO, Herbert Diess.

Even in its more recent rendition, the transaction faces scrutiny by worker representatives. Industry insiders report that works council leader, Bernd Osterloh, has said that unless the management offers concessions on planned job cuts there could be a confrontation that would “paralyze the company for months”.

Volkswagen is known to have a divided boardroom situation with strong voices coming from numerous stakeholders, not least of which the workers themselves. This has made delivery of strategy a precarious process.

As for Renk, proposals have spanned whole or partial resale, demerger and even possible joint venture or partnership options. The sales process is to be overseen by Citi bank which is acting as advisor, with valuations for the transaction ranging between €600m to €800m.

Main bids are coming from Germany-based multinational industrial group Voith and defence industry group Rheinmetall. Additional offers are coming from private equity firms KKR, Carlyle, and Advent. 

With Rheinmetall a strong candidate for the acquisition, Volkswagen could be in for stiff negotiations. The defence group’s approach to acquisitions over the last 20 years has been a numbers game. Since 2010 alone, Rheinmetall has acquired RMMV, RBSL, Cyel, Helios Areo Services, Simrad Optronics, Langsdale, Alpho Air, and a number of other companies.

The large quantity of transactions and the deliberate focus of Rheinmetall’s resources into almost exclusively military industry applications, combined with the struggling nature of Rheinmetall’s automotive division – might see it look to purchase Renk at the low end of the valuation range, with an eye for subdivision and resale of certain areas of the business.

However, from analysis by GlobalData, it is possible that Rheinmetall’s expansionist agenda is a screen for the group’s core doubts, owing to the fractured health of the land defence market to which it is highly-reliant.

“With a sluggish home market and increasing international competition, the consolidation of the European land defence industry is becoming a matter of survival,” analysts said, commenting on Rheinmetall’s market position.

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Richard Mueller