Deal Overview
On January 22, 2025, Aptiv PLC (NYSE: APTV, $62.80; Market capitalization: $14.8 billion) disclosed that its board of directors have unanimously approved a plan to separate its Electrical Distribution Systems business (“EDS” or the “EDS business”) from Aptiv, creating two independent companies.
Post separation, Aptiv will focus on advanced software and hardware technologies, including products for the automotive, aerospace, defense, telecommunications, and industrial sectors. The company’s portfolio will consist of software platforms for advanced driver-assistance systems (ADAS), in-cabin user experience, and interconnects and components. EDS, on the other hand, will become a standalone entity specializing in electrical architectures for automotive and commercial vehicle markets. The company will provide low-voltage and high-voltage solutions, which are crucial as electric vehicle production grows.
The separation is expected to be effected through a spin-off of EDS, under which Aptiv shareholders will retain their current shares and receive a prorata dividend of shares of the new EDS company stock. The transaction is expected to be tax-free for both Swiss and U.S. federal income tax purposes.
The company has not disclosed the record date and distribution date of the transaction but intends to complete the spin-off by March 31, 2026, subject to final approval by its board of directors and other customary conditions, including the receipt of opinions from tax advisors and the filing and effectiveness of a Form 10 registration statement with the US Securities and Exchange Commission.
Goldman Sachs & Co. LLC and Centerview Partners LLC are serving as the financial advisors to Aptiv, and Paul, Weiss, Rifkind, Wharton & Garrison LLP are serving as the legal counsel.
Deal Rationale
Aptiv maintains its position as a prominent player in the automobile components industry, specializing in electrical systems, advanced driver assistance systems, and connected vehicle solutions. The company has announced plans for a strategic restructuring via a spin-off of the EDS business amid headwinds in the electric vehicle market. This strategic decision aims to create two distinct entities: a “New Aptiv” focused on growth-oriented technologies such as software, sensors, and connectors for electric vehicles, safety systems, and user experience; and a standalone EDS business encompassing Aptiv’s traditional electrical architectures, including wiring harnesses.
The auto industry had faced a challenging 2HFY24, hurt by competition from Chinese companies and a decline in consumer demand due to inflation and economic concerns, leading many manufacturers to prioritize their higher-margin segments. As a result, the separation move by Aptiv comes as the Dublin-based company takes initiatives to boost its profitability after cutting its annual sales forecast in October, as large automakers realign their electrification efforts to adjust to the volatile market.
Since 2018, Aptiv has shown a consistent growth trajectory, with its revenue increasing from $14.4 billion in FY18 to $20.1 billion in FY23, reflecting a CAGR of ~6.8%. This growth was supported by strong performance across its various segments. However, in 9MFY24, the EDS segment experienced a YoY revenue decline of ~3.3% to $5.8 billion. This decline in the EDS segment was a notable factor in Aptiv’s overall revenue decrease (2.0% YoY in 9MFY24), reflecting the broader challenges faced by the industry. EDS business has also been a low-margin generating business for Aptiv, with an estimated FY24E adjusted EBITDA margin of 9.5% versus 18.8% for the rest of the business. We believe that by separating the traditional EDS business from its high-growth technology segments, Aptiv may be able to achieve more accurate market valuations for each component of its operations. Thus, the spin-off can prove to be a potential catalyst for unlocking shareholder value.
Aptiv’s Chairman and CEO, Kevin Clark, emphasized that the separation is a part of the company’s broader transformation strategy. Following the completion of the transaction, Aptiv will have a portfolio of advanced software and hardware technologies that will be a high-growth, high-margin business with strong cash flow generation. This should support continued organic and inorganic investment in differentiated products and solutions and further penetration of adjacent markets. The separation will also allow Aptiv to concentrate on long-term trends such as electrification, automation, and artificial intelligence, aiming for mid-to-high single-digit revenue growth and strong cash flow.
Aptiv PLC is a global technology and mobility architecture company primarily serving the automotive sector. Aptiv designs and manufactures vehicle components and provides electrical, electronic, and active safety technology solutions to the global automotive and commercial vehicle markets. Its offerings create the software and hardware foundation for vehicle features and functionality, effectively developing the ”brain” and “nervous system” of increasingly complex vehicles. Aptiv serves the 25 largest automotive original equipment manufacturers (OEMs) globally. The company operates 138 major manufacturing facilities and 11 major technical centers across 50 countries. It employs approximately 22,200 scientists, engineers, and technicians focused on developing market-relevant product solutions. Aptiv operates in two primary business segments: Signal and Power Solutions, and Advanced Safety and User Experience.
A) Signal and Power Solutions (S&PS): The S&PS segment focuses on the design, manufacture, and assembly of the vehicle’s electrical architecture. It includes engineered component products, connectors, wiring assemblies, harnesses, cable management, electrical centers, and high-voltage and safety critical distribution systems. The goal is to provide a complete electrical architecture for vehicles. S&PS segment operates through two sub-segments, Electrical Distribution Systems, and Engineered Components Group.
Electrical Distribution Systems (EDS)
The EDS sub-segment is focused on the comprehensive integration of electrical systems within vehicles. This includes the design and implementation of systems that manage the distribution of electrical power and signals throughout the vehicle, ensuring efficient and reliable operation. Central to this sub-segment are electrical centers that provide centralized power and signal distribution, incorporating all necessary circuit protection and switching devices. These systems are optimized to enhance the overall vehicle electrical architecture, allowing for the use of smaller cable sizes and ultra-thin wall insulation, which contributes to weight reduction and improved vehicle efficiency. Additionally, this sub-segment includes high voltage systems, such as 48-volt hybrid systems, which are integrated into a single, optimized vehicle electrical system. This integration supports the growing demand for electrification in modern vehicles, enabling advanced functionalities and improved performance.
Engineered Components Group (ECG)
The ECG sub-segment provides highly engineered components that are essential for the safe and efficient distribution of power and data within vehicles. This sub-segment focuses on the design and manufacture of connectors and wiring assemblies, which are critical for maintaining the integrity and reliability of vehicle electrical systems. Additionally, it offers solutions for cable management and fastening, ensuring that the electrical systems are securely integrated into the vehicle’s architecture. While the primary focus is on automotive applications, the engineered components also have significant applications in other sectors, including industrial, telematics, aerospace, defense, and medical markets.
B) Advanced Safety and User Experience (AS&UX): The AS&UX segment focuses on critical technologies and services that enhance vehicle safety, security, comfort, and convenience. It includes sensing and perception systems, electronic control units, multi-domain controllers, vehicle connectivity systems, cloud-native software platforms, application software, autonomous driving technologies, and DevOps tools. AS&UX segment operates through three sub-segments, Active Safety, Smart Vehicle Compute and Software, and User Experience.
Active Safety (AS)
The AS sub-segment delivers technologies that enhance vehicle safety and enable advanced driver assistance systems (ADAS) and automation. This includes solutions such as radar, vision, and other sensing technologies that allow vehicles to detect and respond to their surroundings. These systems support critical safety features like adaptive cruise control, lane-keeping assistance, emergency braking, and collision avoidance.
Smart Vehicle Compute and Software (SVC&S)
The SVC&S sub-segment provides the computational platforms and software tools necessary to manage the increasing complexity of modern vehicles. This includes zone control and centralized computing platforms that act as the vehicle’s brain, enabling seamless integration of various systems and functionalities. Additionally, this sub segment offers edge-to-cloud tools that support real-time data processing, connectivity, and over-the-air updates.
User Experience (UX)
The UX sub-segment is dedicated to enhancing in-cabin solutions that improve comfort, convenience, and interaction between the driver and the vehicle. This includes infotainment systems, driver interfaces, and interior sensing technologies that create a more intuitive and personalized driving experience. By integrating advanced features such as voice recognition, touchscreens, and augmented reality displays, Aptiv enables automakers to meet consumer expectations for connectivity and ease of use.
3Q24
Total revenue decreased 5.1% YoY to $4.8 billion (-4.5% vs. consensus), as Signal and Power Solutions segment revenue declined 6.6% YoY to $3.4 billion, and Advanced Safety and User Experience segment revenue declined 1.0% YoY to $1.4 billion. Adjusted EBITDA increased 7.0% YoY to $778 million (-2.3% vs. consensus), and corresponding margins increased ~181 bps to 16.0%, primarily reflecting the benefits of cost reduction initiatives. Adjusted operating income grew 5.9% YoY to $593 million (-3.0% vs. consensus), and corresponding margins increased ~127 bps to 12.2%. Adjusted net income grew 22.3% YoY to $449 million (+9.4% vs. consensus), and corresponding margins increased ~207 bps to 9.3%. Adjusted earnings per share came in at $1.83 (3Q23: $1.30 per share), beating the consensus estimates by 9.6%.
FY23
Total revenue increased 14.6% YoY to $20.0 billion (-0.7% vs. consensus), as Advanced Safety and User Experience segment revenue grew 24.2% YoY to $5.7 billion, and Signal and Power Solutions segment revenue grew 11.3% YoY to $14.4 billion.
Adjusted EBITDA increased 27.3% YoY to $2.8 billion (-0.4% vs. consensus), and corresponding margins grew ~138 bps to 13.9%, due to increased global vehicle production, pricing and the results from recent acquisitions. Adjusted operating income rose 34.2% YoY to $2.1 billion (-0.3% vs. consensus), and corresponding margins grew ~155 bps to 10.6%. Adjusted net income rose 42.3% YoY to $1.4 billion (+1.3% vs. consensus), and corresponding margins grew ~133 bps to 6.9%. Adjusted earnings per share came in at $4.86 (FY22: $3.41 per share), beating the consensus estimates by 1.2%.
Company Description
Aptiv PLC (Parent)
Aptiv PLC, headquartered in Dublin, Ireland, is a global technology company specializing in the design, manufacture, and sale of vehicle components. The company operates through two main segments: Signal and Power Solutions, which focuses on vehicle electrical architecture, including connectors, wiring assemblies, and hybrid high voltage systems. The other segment, Advanced Safety and User Experience, provides technologies for vehicle safety, security, and connectivity, such as sensing systems, electronic control units, and autonomous driving technologies. Aptiv, originally part of General Motors as Delphi Automotive Systems, became independent in 2011. As of December 2023, Aptiv employs approximately 154,000 people worldwide. Aptiv serves the 25 largest automotive OEMs worldwide, operating 138 major manufacturing facilities and 11 major technical centers across 50 countries.
Electrical Distribution Systems Business (Spin-Off)
Electrical Distribution Systems (EDS) business is a leading global supplier of low voltage and high voltage signal, power, and data distribution solutions for the automotive and commercial vehicle markets. EDS focuses on optimizing electrical architectures to support the electrified, automated, and connected future of mobility. The business designs and delivers fully integrated electrical systems, including connectors, wiring assemblies, and hybrid high voltage systems, ensuring efficient and reliable power distribution within vehicles. EDS leverages its global scale and localized regional capabilities to meet the evolving needs of its customers.