The purchase will secure Rheinmetall's deal with the US military.
The U.S. military is seeking a successor to the M2 Bradley Fighting Vehicle and plans to purchase 40,000 military trucks. German defense contractor Rheinmetall is positioning itself for both opportunities and has a good chance of winning them. For nearly $1 billion, the DAX-listed company is expanding its presence in the U.S. and acquiring a supplier.
The defense conglomerate Rheinmetall aims to expand its business with the U.S. military and has acquired supplier Loc Performance for that purpose. The Düsseldorf-based company has already secured multi-billion-dollar contracts from the U.S. government for new armored fighting vehicles and military trucks. Rheinmetall is paying $950 million for the company based in Plymouth, Michigan, as announced by the DAX corporation.
Rheinmetall hopes that this acquisition will give it better chances of winning contracts on the world's largest defense market. With Loc and its approximately 1,000 employees, the company can expand its product range for military vehicles and local production capacity, which is important to the U.S. government. Loc operates four plants in the states of Michigan and Ohio, where it manufactures drive trains, suspensions, track systems, rubber and armor products, and vehicle platform structures. The company's customers include not only the military but also the construction and agriculture industries.
The acquisition is expected to give Rheinmetall an advantage in the competition for two major U.S. contracts: in the XM30 program to build a new generation of armored fighting vehicles to replace the M2 Bradley, the company is one of two participants in the prototype phase. This involves the production of 4,000 armored fighting vehicles for $45 billion. In addition, Rheinmetall is hoping to win the contract for the approximately $16 billion "Common Tactical Truck (CTT)" program for 40,000 military trucks.
Rheinmetall aims to grow
Rheinmetall CEO Armin Papperger has repeatedly emphasized that he has high hopes for the U.S. market and plans acquisitions there. "We are investing a lot of money, we have a clear strategy for growth, and the United States will be a strong core market for us in the coming years," he recently said. This applies regardless of the outcome of the upcoming U.S. presidential election in November. Rheinmetall already has factories in the U.S. and cooperates with U.S. companies such as Lockheed Martin.
Due to the high defense spending of Western states in response to Russia's attack on Ukraine, Düsseldorf-based Rheinmetall is on track for record growth. "We have never grown as strongly as we are now," Papperger said, looking at the second quarter. He is also looking for takeover targets and cooperation partners. In Italy, he founded a joint venture with Leonardo, which focuses on multi-billion-dollar contracts for the Italian army's tanks.
The U.S. military is considering Rheinmetall as a potential provider for their need of a new generation of armored fighting vehicles, as the company is one of the participants in the XM30 program. The U.S. military is also looking to purchase 40,000 military trucks, and Rheinmetall is vying for this contract in the Common Tactical Truck (CTT) program.
