Acquiring TMD Friction, Europe’s leading brake friction-material maker (2011)

You can buy share — but can you buy earnings?

What this acquisition asks is what was expected from the position of world number one. Friction material is a component sold along carmakers’ region-by-region procurement, and reaching European customers requires European plants and European channels. Since building those from nothing takes a decade or more, the judgement to buy a running company whole had its logic. Share did in fact jump from 5% to 15%, and sales more than doubled. Broadly speaking, what was supposed to be obtained at the moment of purchase was obtained.

What was not obtained was profit. European competition and rising raw-material costs were conditions visible before the deal, and onto them were layered pressures that intensified afterwards — electrification, and dust regulation. Twelve years later President Murakami Masahiro called the disposal a “loss cut,” explaining it as a choice to narrow down to copper-free friction material, the field in which the company is strong. Buy scale and stand at the top, or stay in a narrower field you can win — the same company answered in opposite directions twelve years apart, and the question recurs for any management holding a diversified set of businesses.