PARIS – An absence of the US Mack Defense brand name played a key role in slashing the bidders’ valuation of Volvo’s military vehicles business, which led to the Swedish company to cancel its tender, two industry executives said on Wednesday.
The bidders’ valuations in the sale of the Volvo Group Governmental Sales unit were essentially based on Acmat, Panhard and Renault Trucks Defense, based in France, the sources said.
CMI, a Belgian firm that specializes in guns and turrets, and Franco-German joint venture KNDS, were the rival bidders in the competition, which Volvo said yesterday had been cancelled due to low bids. Volvo will maintain operations of the government sales unit.
The US Mack Defense unit was excluded from the sale, dragging down the two bids, which were around €400 million (US $471 million), said the first executive.
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Volvo wanted to hold on to the Mack Defense brand name and business because the U.S. unit won in 2015 a contract worth more than €500 million (US $588 million). That deal was to supply more than 1,500 trucks to the Canadian Army, with delivery between mid-2017 and the end of 2018 and an option for a further 600 units.
These are not just eight-wheel drive commercial trucks but vehicles delivered to military specification, including elements such as bullet-proof armored driver’s cab and central tire inflation system, the executive said.
RTD and Panhard build the vehicles in France and ship them bearing the critical Mack brand name, the executive said. The cab will be assembled in Canada.
Retaining the Mack name gives Volvo direct access to the U.S., the biggest military market. Mack does not build vehicles in the U.S. but has set up an engineering and prototype center.
The 2015 contract for the Canadian Army’s medium support vehicle system is the largest award for Mack since World War II, the company said on its website.
A Volvo spokesman, Joakim Kenndal, declined to comment on the Mack business.
The canceled sale has injected doubt over the future of Volvo’s military vehicles business, with a view that the Swedish company is waiting to put the unit back on the market to fetch a higher price, the executive said. That uncertainty will likely weaken sales as potential customers want to know the stability of suppliers of military gear. It remains to be seen whether Kuwait will now sign a contract for the RTD Sherpa light vehicle.
That prospective Kuwaiti deal, worth close to €270 million, was announced last December by the then French defense minister Jean-Yves Le Drian while on a visit to an RTD plant.
“Long term partnership is key in the military market,” the executive said. Lower sales hurt the order book, weakening the valuation. So if Volvo were to try to sell the division again, the price will be lower than the CMI and KNDS valuations, which were already considered too low.
Both the rival bidders submitted offers of around €400 million, a second executive said. The very closeness of the competitors’ valuation signalled that Volvo had overvalued the unit.
Volvo, advised by Rothschild, had expected bids of around €500 million, the equivalent of 2015 sales of RTD.
KNDS made its offer after the joint venture partners Nexter and Krauss-Maffei Wegmann agreed on valuation, the second source said. For the former, there were industrial and political factors underlying its valuation, while the latter, a private firm of the Bode family, is keyed to financial interests and to buy “at the right price.”
That the sale boiled down to just two bidders reflected a French political chill toward bids from foreign and venture capital firms for a military company, the second source said. Of venture capital firms, Advent was seen as a strong contender but there was talk of a clear political message of a lack of welcome, perhaps to avoid any suspicion that president Emmanuel Macron, a former Rothschild investment banker, had shown preference.
RTD is the main unit in the Volvo Group Governmental Sales division, which accounts for some 1.5 percent of group sales. The government sales unit employs some 1,300 staff, mainly in France.
Acmat sells into Africa, RTD is strong in the Middle East and Panhard sells in Asia. The U.S. Africa Command has an order for Acmat Bastion troop carriers for African nations.
State-owned Nexter works on the chassis and RTD on the engine and driveline on the Griffon multirole troop carrier and Jaguar combat vehicle in the French Army’s €6 billion Scorpion program.
