Allison Transmission

Case Study

Allison Transmission

Industry:
Industrial
Region/Country:
Indiana, USA
Acquired:
Aug 2007
Status:

Deep industry expertise. Global scale and presence. Extensive network of Operating Executives. And a wealth of investment portfolio data. These are the four pillars of Carlyle’s ability to drive value in the companies and assets in which our funds invest.

About Allison and the Transaction

Founded in 1915, Allison Transmission, Inc. is a global designer, manufacturer and supplier of automatic transmissions for medium- and heavy-duty commercial vehicles and specialty military vehicles, including on-highway trucks, buses, motorhomes and off-highway vehicles.

Allison is headquartered in Indianapolis, Indiana and also has facilities in Hungary, The Netherlands, Brazil, India and China. Allison has approximately 2,800 employees worldwide with more than 2,500 employees in Indiana, approximately 1,500 of whom are represented by the United Automobile Workers. Allison has historically maintained strong relations with the UAW.

Key Value Creation Metrics

  • Acquired the business as an orphaned division within General Motors and transformed it into a standalone company listed on the New York Stock Exchange
  • Supported EBITDA growth from $544 million to $712 million, a 30% increase, despite a severe market downturn in the commercial vehicle industry
  • Invested more than $450 million in product related research and development, including new hybrid, fuel-efficient electric drives
  • Pursued international growth opportunities by increasing market share in Europe and emerging markets, including China and India

The Carlyle Group and Onex, another investment firm, acquired Allison from General Motors in August 2007. At the time, Allison was a subsidiary of General Motors, lacking the resources necessary to grow the business. Carlyle and Onex saw the opportunity to take an under-resourced and sub-optimized business, support leadership, infuse capital and transform it into a platform that could take advantage of the growing global demand for transmission products.

During Carlyle’s investment, Allison transitioned from an operating division at GM to a well-capitalized standalone company. In March 2012, Allison became a publicly-traded company and listed its shares on the New York Stock Exchange under the symbol ALSN.

Strengthening its Core Domestic Business

To position Allison for growth, Carlyle enhanced the company’s senior leadership team after acquiring the business from GM, including appointing directors with considerable commercial experience and supplementing the management team with a new CFO. During its ownership, Carlyle worked with Allison to execute a number of manufacturing and purchasing initiatives to increase efficiency, reduce operating costs and enhance profitability. For example, Allison implemented a mutually-beneficial labor agreement with the UAW that introduced an annual profit-sharing incentive compensation plan for the hourly workforce. Additionally, Allison’s focus on manufacturing optimization has resulted in a continued reduction of manufacturing hours per unit year after year, reducing operating costs. As a result, Allison has been able to increase EBITDA by 30%, despite experiencing one of the most severe economic downturns the commercial vehicle industry has ever faced. Globally, in 2011, Allison sold approximately 62% of all fully-automatic transmissions for medium- and heavy-duty on-highway commercial vehicle applications.

Investing for the Future

With Carlyle’s strategic assistance, Allison has focused its research and development initiatives on next generation, fuel efficient technologies, investing more than $450 million in product related research and development from 2008 to 2011. As a result, Allison has more new products under development today than at any time in its history. For example, Allison is using a cost-share grant from the U.S. Department of Energy to develop a hybrid-propulsion system for mediumand heavy-duty commercial trucks, which will improve fuel efficiency by 25% to 35% for a typical vehicle. Today, Allison is one of the largest providers of hybrid electric drives to the transit bus industry and continues to develop products for other commercial vehicle applications. In 2011, President Barack Obama visited Allison’s headquarters, and he praised Allison for its energysaving technology and the company’s role in retaining jobs in Indiana.

Investing in International Growth

While maintaining its leadership position in the U.S., Allison is pursuing growth opportunities abroad. These investments in people as well as facilities are resulting in market share gains in Europe and emerging economies, such as China and India. To support its international growth strategy, the company established new manufacturing facilities in India and Hungary. Furthermore, Allison has increased marketing, sales and service headcount in China, India, Brazil and Russia regions by 80% since 2007, including a 182% increase in China and India. As a result of these efforts, Allison has seen significant growth in international sales.