Bumpy Road Ahead: The Automotive Interiors Merger
That Wasn’t
Author: Milton Sousa, Lauren Comiteau
Pub. Date: 2021
Product: SAGE Business Cases
DOI: https://dx.doi.org/10.4135/9781529754889
Disciplines: Business & Management, International Business & Management, Leadership, Strategic
Management, Managing Across Cultures, Cross-Cultural Leadership, Mergers & Acquisitions
Access Date: December 18, 2022
Publishing Company: Rotterdam School of Management, Erasmus University
City: London
Online ISBN: 9781529754889
© 2021 Rotterdam School of Management, Erasmus University All Rights Reserved.

Abstract
This case is about the merger & acquisition (M&A) process between American Automotive, Inc.
(Smiths) and BarcelonaBrand Auto, Inc. (BBA). While the case is written in a fictional style, it is
inspired by a real story with many similarities to what is portrayed. The case takes place within
the automotive components industry and describes an acquisition and later merger between a
much larger company, based in the USA, selling standard automotive components and a much
smaller company based in Spain, selling customized automotive components for the luxury seg-
ment. What seemed to be a great strategic deal turned out to be an integration nightmare high-
lighting the importance of understanding national and company cultures, different leadership
styles, deal valuation and specific distinctions in business models in M&A. The key question of
the case is: what had gone wrong in this merger in such a little time?
Case
All eyes were on Luis Barros as he took his seat at the head of the oval mahogany board table in his
Barcelona headquarters and ran a commanding hand through his thick mane of white hair. As president,
founder and CEO of BarcelonaBrand Auto, Inc. (BBA), he was used to the attention and, frankly, adoration.
But today, an unusually windy March morning in 2008, Barros was uncharacteristically sharing the limelight.
Seated next to him was the somber Alan A. Smith, Jr., president of Smith Automotive Company, Inc. (Smiths),
the American multinational corporation that a little more than a year ago bought BBA and merged the two
companies in what was hailed as the merger of the decade—a “smooth ride if ever there was one,” predicted
financial weekly Barron’s at the time. Now Barros and Smith had come to announce the dissolution of the
company to its board and top management. What had gone so wrong in so little time?
Invention and Innovation
Visionary Luis Barros had long been a superstar in the design world of the automotive industry. An engineer
and designer by training, he was an inventor at heart. In 1985, foreseeing the rise of the coffee-to-go phenom-
enon, he patented the world’s first integrated cup holder for automobiles. Mercedes and Jaguar immediately
became his first two customers and also investors.
By 1995, Barros decided to start his own firm to control all elements in the manufacture of his integrated cup
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Page 2 of 8 Bumpy Road Ahead: The Automotive Interiors Merger That Wasn’t

holder system instead of outsourcing its production as he had been doing for years. Barros also wanted to
expand into the luxury market of auto interiors and had recently patented his design for an innovation in air
vents that again had Mercedes and Jaguar placing huge orders and agreeing to put up capital for Barros’
venture. They were looking forward to more innovative products from the master. It was a niche market, and
Barros knew with a company behind him, he’d be able to offer customized products to his clients.
In the summer of 1995, BBA set up shop in Barcelona’s La España Industrial Park. Barros’ status as inventor
of the coffee cup holder allowed him to break into a competitive field, his name opening doors to an elite list of
clientele. It also secured him two more investors, CaixaBank and Oxford Capital Mgmt. in London (although
Luis Barros always kept the majority of the shares).
From 1995 until 2005 the company saw tremendous, double-digit growth. Barros was able to recruit the best
young designers and engineers to come work for him in Barcelona, mostly from within the country (something
he was proud of). While most of the automotive industry was based in the US, Germany and Japan, Barros
wanted to put Spain (and Barcelona in particular) on the automotive design map and make it an international
competitor in an industry not nascent to the country.
By 2005, he employed 250 people—mostly designers, engineers and sales reps—to design, produce and sell
not only his integrated coffee cup holder but his bespoke ashtrays, grills and storage boxes. BBA partnered
also with external famous designers for some signature products. Despite having developed some product
platforms, every solution was customized to the new car models of BBA’s loyal customers (most of BBA’s
turnover was based on repeat customers). BBA had an annual $40 million turnover, representing a 30% an-
nual growth rate, double that of the industry standard and an EBITDA of $4 million. Because his clients were
all located outside of the country, BBA developed sales teams in Germany, Japan and the US. By 2003, BBA
was named one of Europe’s 500 fastest-growing companies, a recognition, said Barros, which showed his
company’s commitment to “entrepreneurial spirit, innovative management, business growth and employment
creation.”
The head-office of BBA reflected its modus operandus and pride. Apart from the somehow more exquisite
board room, BBA had highly functional open space to stimulate interaction and shared learning. On the walls
you could see some awards and accolades of BBA’s achievements. The office of Luis Barros was itself part
of the open space, and people could often hear his outbursts whenever projects would fail to meet his high
standards. He was proud of using the same old car already for years, something that always surprised BBA’s
employees.
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“Working for Barros was a both a blessing and a curse, but mostly a blessing,” said one longtime designer
on BBA’s payroll. “Barros was a visionary and a natural leader who inspired us all. But at the same time,
he was a micro-manager and control freak, and as sole authority at the company, his frequent angry tirades
had to be tolerated. But Barros believed in the company, believed in his products, believed in Spain and, ul-
timately, believed in us. His vision and commitment inspired us to do our best and we were rewarded both
financially and with the satisfaction that comes from seeing a vision become reality. We were like one big
family, slightly dysfunctional, but all working towards the same goal, and we gave ourselves over to it—and
our patriarch—completely and gratefully.”
Indeed BBA was run like a benevolent dictatorship. Barros’ young work force was highly committed, often
working 60 to 80 hour weeks. They were driven and ambitious and mostly not yet tied down by family de-
mands, able to thrive in Barros’ demanding workplace. At the same time the work environment was very infor-
mal and dress codes were relaxed, even among sales reps. As a young company, there was plenty of room
for growth, and the thrill of being a successful start-up kept the entrepreneurial spirit alive as BBA constantly
looked for new cutting-edge products to design and manufacture, radio bezels and utility trays among them.
The mission of BBA, devised by Luis Barros, was the same since the founding of the company: “To become
the supplier of choice for customized automotive component solutions, based on innovative and state-of-the
art engineering”.
By 2006, with the luxury auto market booming, Barros was looking to grow his business, hoping to get out of
the niche market by producing a few standardized high-end versions of his staple products, mostly his inte-
grated coffee cup holder that could be sold more off-the-shelf. He needed more financing, but didn’t want to
give up control of his private enterprise or see its brand name dissolve. Historically, BBA ran on reinvested
profits and external capital from its two financial partners. While a public offering would have solved Barros’
financial problems, it didn’t mesh with the vision he had for BBA. Barros wanted to keep control of the compa-
ny and not be beholden to bottom lines and shareholder demands. In short, he wanted someone to fund his
expansion—his way, his goals, his vision.
Enter Smith Automotive Company Inc. (Smiths).
Smiths: An American Story
Although Smiths, like BBA, was in the automotive interiors business, the company was as different from BBA
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as Ladas were to Cadillacs. Started by Alan A. Smith, Sr. in Michigan in 1955, Smiths had been listed on
the NY Stock Exchange since 1960 and represents corporate culture at its finest. Its board had long been
beholden to its shareholders, and as CEO, Alan A. Smith, Jr. had made his father proud by overseeing a
tightly-run organization with global reach that, by 2006, employed 320 people and had an annual $200 million
turnover. The new corporate head-office of Smiths, recently renovated, demonstrated its growth process and
the motivation of Alan A. Smith, Jr. to belong to the American elite of corporate CEOs. The new lavish board
room and executive office, a source of discomfort among some blue collar workers, was designed to impress
and signal the world about Smith’s ambition to grow into a truly global corporation. Sales teams were highly
professional, formal (implicit dress code was to always wear suit and tie, even in the office) and commercially
driven.
Unlike BBA, Smiths specialized in standardized interiors, holding the number four position in its sector. It pro-
duced the big basics for automotive interiors: seating, instrument panels and cockpits, interior lighting, floor
consoles and overhead systems. Its products were sold off-the-shelf. Smith’s partners included some mold
manufacturers and a wide range of distributors.
But Smiths was facing increasing competition from Asian automotive interior producers, especially in China,
and started looking at the possibilities of acquiring a complimentary firm that would allow it to sell complete
interiors—from the control panel and lighting right down to the coffee cup holder. Smiths wanted to be a one-
stop shopping manufacturer for automotive interiors, challenging its competitors by offering its clients a full
range of everything they needed for their auto’s insides. The newly devised mission of Smiths incorported this
ambition: “A full Smiths interior in every car”.
BBA seemed the ideal candidate: the Spanish start-up was cash rich and a world leader in its niche market.
Its products had stood the test of time and the company had good brand recognition. In addition, the customer
base of both Smiths and BBA was complimentary: Jaguar and Mercedes, for example, were customers of
both companies, with Smiths providing the interior necessities and BBA the luxuries. If the two firms merged,
they’d be able to provide a complete package to their clients, who would never have to seek business else-
where. On paper, this merger looked perfect.
The Merger
In February of 2007, the deal was made: Smiths bought BBA for the astronomical sum of $160 million, four
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times the turnover of BBA. Many industry observers questioned why Smiths, who paid mostly in cash, would
virtually empty its coffers to pay such an inflated price for the Spanish start-up.
But at the time, both companies thought it was a good deal. Smiths and BBA had been in talks for almost a
year, and other companies had been making quiet offers to Barros. This led to a bidding war that put pres-
sure on Smiths to act—and act big. Smiths didn’t want to dilute its stock, so the deal had the backing of its
shareholders, who also knew they’d see a quarterly spike in earnings after the merger. Indeed, Smiths moved
its market position to number two after acquiring BBA. “Smiths has had an amazing year,” said Smith, Jr. in
announcing the merger. “Now with the acquisition of BBA, Smiths has strengthened our market position and
will be able to meet our clients’ demands for fully-outfitted automotive interiors.”
As for Barros, he and his two investors wanted cash, and being acquired offered more opportunities than
going public. It also allowed Barros to hold on to his company. Under the terms of the deal, BBA, while re-
maining in Spain, became a business group of Smiths, with its products continuing to be sold under the BBA
brand. Barros became the group president and General Manager and got a seat on Smiths board. The sales,
finance, legal, HR and marketing functions were to be consolidated, but each company’s design teams, engi-
neers and R&D people would stay intact and work in parallel, as they had different know how and specialties
with few overlapping elements.
Barros envisioned the merger resembling the one between Air France and KLM, where each company would
retain its brand identity. “With the combined forces of Smiths and BBA,” Barros told the world, “for the first
time out clients will be able to fully outfit their automotive interiors without ever having to look elsewhere. This
is a game-changer in the world of automotive interiors.”
The Problems
No sooner had the ink dried on the acquisition than the problems began appearing.
The most obvious one was the structural change to the new company that left everyone feeling cheated. Al-
though Smiths and BBA were to keep their separate identities, in reality, Smiths wanted to merge BBA into its
own corporate structure. Barros’ KLM-Air France vision was quickly dashed.
Nowhere did this policy manifest itself more disastrously than in sales. While BBA kept some of its functions
intact, Smiths’ insistence that the sales teams be integrated was a failure. Used to selling standardized prod-
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ucts, its one-size-fits-all sales mentality couldn’t cope with individual client requests for customized products
(including the one-off wealthy financier looking for a completely customized interior) that BBA’s sellers were
able to accommodate.
And selling in the luxury market was a whole different ballgame from selling to mass producers of workhorse
cars, one which Smiths’ sales team couldn’t get its head around when approaching its new market. Although
the products had looked complimentary on paper, in reality, they were a bad fit.
“Smiths mismanaged the merger,” said one BBA sales rep. “Its integration dogma undermined our sales or-
ganization, turning it into a disaster.”
The acquisition also put Smiths in a competitive position vis-à-vis a few of its clients, who also made some
of their own smaller interior products such as radio bezels and grills. Feeling threatened by the new Smiths,
they took their business elsewhere.
While Smiths did get an initial revenue boost after the merger, that faded after the first quarter. Smiths, who
wanted BBA to start contributing to the company’s revenue as soon as possible, had used almost all its cash
to fund the merger and subsequently had to borrow money at a high premium to keep its operations going.
It became clear that the inflated $160 million price tag Smiths paid for a company with a $40 million turnover
didn’t make financial sense.
This led almost immediately to cost-cutting measures, including layoffs, with BBA people the first to go. While
still showing some growth, Smiths was well behind the industry standard by late 2007. Further, its time spent
on BBA development took away from its own R&D when it came to its core products—lights, navigation sys-
tems, seating—giving the competition a leg up.
Smiths, however, blamed the new company’s failures on the world’s softening economy, which by 2008 was
reaching disastrous proportions, especially in Spain where the housing market went bust. BBA employees,
though, insist demand for luxury cars was not hugely effected, although the demand for cars in general did
plummet, hurting Smiths, which in turn hurt the merged company.
“Smiths brought us down in a way that never would have happened if the merger hadn’t happened,” said one
bitter BBA employee. “We would have seen some slowdown in growth for sure, but we would have been able
to keep our heads above water until the economic turnaround, when again you saw a rise in demand for lux-
ury and specialized automotive components.”
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BBA employees were used to their mostly-benevolent dictator, the visionary who despite his outbursts, in-
spired his workers to go above and beyond in the name of his privately-owned and very personal brainchild.
Barros was BBA. After the merger, with boards and reports and interfering investors and shareholders to con-
tend with, BBA employees lost the motivation that Barros, personally, had always been able to summon.
Smiths was more detached. Its workers lacked the drive and sense of mission that BBA’s employees had and
took a more laid-back approach to their work, focusing on numbers and the bottom line.
Integration was a failure. Disagreements on the board lead to Barros’ resignation a few months later, allegedly
to “pursue personal interests” but in reality, due to his resentment at having to report to a new COO. During
the year’s third quarter, Smiths announced a $120 million write-off, announced job cuts as part of restructur-
ing, and saw its stock lose 5 percent of its value. In addition to the softening of the market, Smiths eventually
acknowledged that “delays in the synergies of the companies” had hurt.
In the end, what had looked like such a promising merger on paper and had been hailed by the industry as
the breakthrough deal of the decade was over just 13 months after it began. What went wrong exactly? Was
there a way to prevent the dissolution of the company?
Epilogue
BBA was eventually sold to the Stallion Group in a $45 million cash deal. On the plus side, the Spanish com-
pany continues producing quality automotive interiors of exceptional design, proving that a homegrown Span-
ish company could achieve global market leadership in an unfamiliar market. Many of BBA’s employees went
to Stallion, while a degree in automotive design has been introduced at Barcelona’s Technical University.
https://dx.doi.org/10.4135/9781529754889
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