Trico acquires Fram Group; analysts see risks in deal

Trico Group has acquired Fram Group.

The deal includes Fram filters and Autolite spark plugs brands. Fram was previously owned by Rank Group, which acquired Fram as part of a deal to buy the automotive consumer business of Honeywell International for US$950 million in 2011.

This follows a January acquisition of ASC Industries and Airtex Products for $75 million by Trico.

The deal has been in place since at least February. Financial analyst company Moody’s reported a month ago that a definitive agreement had been entered into for around US$310 million. The deal will be funded through loans that the agency finds risky because Trico is taking on “significant” debt and doesn’t see filters as a growth category.

“While the company is taking definitive steps to increase scale and diversify its portfolio with three acquisitions, doing so in a relatively short time frame is credit negative because it exacerbates execution and integration risk,” said Moody’s analyst, Inna Bodeck. “In addition, Trico is funding the acquisition of FRAM with a significant amount of debt and acquiring a business whose product category is stable at best as the life cycle of oil filters continues to lengthen and persistent price pressure from a customer base with significant scale weakens margins.”

Jay Burkhart

AC Investments agreed, taking a negative outlook on the deal. It noted that S&P Global Ratings revised its outlook on Trico to negative from stable and commented that the risks from the deal, in addition to the ASC and Airtex acquisitions, would lead to weaker-than-expected credit metrics in the next year.

“Although we recognize the strategic motivations behind these acquisitions, we believe the magnitude of more than doubling its revenue presents opportunities for missteps. In addition, FRAM, Airtex, and ASC have all been experiencing declining revenues, and a weakening macroeconomic environment could result in unanticipated headwinds,” the company said.

That didn’t damper Trico’s happiness for the deal.

“We are excited to enhance our product portfolio with these two leading brands,” said Jay Burkhart, Trico president, according to aftermarketnews.com. “The filter category is a natural complement to our wiper products as our ‘maintenance’ offering, while Autolite adds to our ‘repair parts’ product line of fuel pumps, water pumps and lift supports.”

Trico did not respond to AutoServiceWorld’s request for comment.