“Look beyond the figures”

Gimv Punch Powertrain proves to MBA students how operational change can create value

Professor Robert Boute invited Bart Cauberghe, Managing Partner & Head Smart Industries* from our Chair Partner Gimv, to present the Punch Powertrain project to our full-time MBA students on 17 January. During a 90-minute lecture Bart took his audience on a bumpy and at times hilarious journey, explaining how in just seven years a low-performing supplier of automatic transmissions was turned into a highly attractive company worth 1 billion euros. “Not by financial ‘tricks’, but by operational improvements.”

Full-time MBA students Vlerick     Full-time MBA students Vlerick

Full-time MBA students Vlerick     Full-time MBA students Vlerick

The story of Punch Powertrain is half European, half Chinese. Know-how, software and production of key components are based in Sint-Truiden (B) and Eindhoven (NL), while sales and assembly takes place in Nanjing, China. And it’s no coincidence that this guest lecture was being given while 24 students from Peking University were on a two-week exchange visit to our School, which meant that one-third of the audience had Asian roots. So there were chuckles all round during Bart’s presentation when he pointed out some striking differences between European and Chinese business practices.

Bart, why did you specifically choose the Punch Powertrain project for this MBA lecture?

Bart CaubergheBart Cauberghe: “This project allows them to connect the dots between several subjects in the full-time MBA curriculum: operations management, corporate finance, private equity, international business and leadership. But the Punch Powertrain example also goes beyond finance. It proves that, as an investor, you need to have a deep understanding of the company, the market and the potential of both. How can operational improvements drive sales and optimise HR? It’s also a story about bridging the gap between cultural differences, patience, trust, gut feeling and that indispensable bit of luck.”

Bart Cauberghe, Managing Partner & Head of Smart Industries, Gimv: “This project allows the students to connect the dots between several subjects.”

Key figures Punch Powertrain project

   2010 2016 
 Sales  69 m €  500 m €
 EBITDA  4 m €  115 m €
 Capacity  100 k units  450 k units
 Headcount  210 FTE  1600 FTE
The Punch Powertrain deal was certainly spectacular: the EBITDA was multiplied by more than a factor 20 – from 5 million euro to more than 100 million euro – and Gimv multiplied its investment by a factor 17 generating a 60 % annual return on its investment. But the road to that success was quite a bumpy one, wasn’t it?

Bart: “You can say that again. (smiles) The decision to invest in Punch Powertrain back in March 2010 was not an obvious one. The company had a 20 million euro debt, declining sales and negative profitability, and as the supplier of automatic transmissions for Mini Cooper, BMW was their only customer who decided to stop the CVT with its new engine. We took some major decisions in a number of fields.”

  • leadership: 2 top executives
    “We attracted two independent members who, along with myself, got a seat on the operational and R&D committee. But we were also involved in supporting the company in some aspects of the daily management of the company. Apart from their individual qualities, I think the chemistry between the two top managers – the Dutch CEO and the Taiwanese General Manager of the Najing facility – was crucial in this success story.”
  • marketing & sales: expand the customer base
    “The top-notch technology of Punch Powertrain offered opportunities to expand the customer base in China. The Chinese automotive market was booming and in dire need of clean powertrain solutions that were suitable for city traffic. That’s why we decided to position Punch Powertrain as the leading independent supplier of automatic transmissions to a range of smaller Chinese car manufacturers. In order to make the transmissions affordable, we had to reduce the cost of the total transmission by shifting suppliers and moving to smarter designs.”
  • Operational & cultural improvements: introduction of CVTs
    “In the European plants Punch Powertrain introduced CVTs or Continue Verantwoordelijke Teams (in English: Continuously Responsible Teams – a play of words on ‘continuously variable transmission’), which caused a major cultural change among the workforce. The operational focus shifted from labour capacity to machine capacity. Instead of one shift over five days, they started working in five shifts over seven days. The factory has been divided in seven mini-factories that became more autonomous and the barrier between blue and white-collar workers gradually disappeared.”
  • M&A: 3 acquisitions
    “Contrary to the traditional private equity model, more than 200 million euro of cash was invested in capacity expansion, product development and three acquisitions that allowed for more in-house technology and a broader engineering base.”
But then came 2013…

Bart: “And sales were stagnating and slightly dropping. Inevitably the question arose whether it wouldn’t be better to sell. We would get three times our money back – nice job. The pressure was on, but we stuck to our guns. We attracted a Chinese private equity shareholder for a minority and continued our real partnership between management, Belgian and Chinese investors. And we were lucky to see a massive increase in Chinese demand for SUVs in the years that followed – requiring the very same product Punch Powertrain supplied and invested heavily in.

“Two years later the circumstances were much more favourable and our team started preparing the exit. We talked to American and Asian strategic investors but also to several Chinese private investors. We met some of the Chinese private investors several times at two-monthly intervals to establish mutual trust and finally closed the deal. Punch Powertrain has been sold for 1 billion euro to the Chinese industrial conglomerate Yinyi.”

More information on the Punch Powertrain project

Watch the Punch Powertrain company video

Tamer ChengDragon dance
Tamer Cheng (full-time MBA student, Egypt/Taiwan): “I was very impressed with the way Gimv managed the financial performance of Punch Powertrain. But I also appreciated the way in which they respected Chinese traditions and ceremonies, like organising a dragon dance when a new plant was opened. And I can also sympathise with Bart when he recalled the difficulties they had when they started to manage the small Chinese car manufacturers. Chinese forecasts leave more room for interpretation.” (wink) 

6 Gimv-lessen over investeringen

* Smart industries is one of the four investment platforms of Gimv, focusing on innovative companies which offer B2B products and services, enabled by engineering or deep technology expertise. The other platforms are Connected Consumer, Health & Care, and Sustainable Cities.