Continental sells ContiTech to Lone Star for €4 billion in carve-out deal

Continental AG signed a €4 billion agreement Saturday to sell its ContiTech plastics and rubber business to Lone Star Funds, shedding a low-margin division to sharpen focus on automotive electronics and autonomous driving as the industry shifts to electric vehicles.

"The divestiture allows Continental to streamline its portfolio and allocate capital toward higher-growth segments in electric mobility and digitalization," said a person familiar with the transaction, who asked not to be named discussing private terms.

The base valuation of €4 billion ($4.57 billion) includes potential performance-based payments of as much as €250 million tied to ContiTech's financial milestones in subsequent years. The Hanover-based company's executive and supervisory boards both approved the terms, according to a statement. ContiTech, which specializes in rubber and plastics technology for automotive, railway and mining applications, generated roughly €6 billion in annual revenue.

The sale represents a strategic pivot for Continental, which has been restructuring to emphasize its core automotive technology business as the industry shifts to electric vehicles. For Lone Star, the acquisition adds a major industrial asset with diversified end-market exposure. The deal is subject to customary regulatory approvals, with closing expected in the coming months.

Deal Structure and Rationale

The transaction values ContiTech at roughly 0.67 times its annual revenue, a multiple consistent with recent European industrial carve-outs. The last comparable deal — KKR's €3.2 billion acquisition of German automotive supplier Hella's lighting division in 2023 — closed at a similar revenue multiple. Lone Star, a Dallas-based private equity firm with more than $95 billion in assets under management, has been active in European industrial deals, including the 2021 acquisition of German chemical company KRAIBURG. The performance-based earnout of up to €250 million suggests Lone Star expects to drive operational improvements at ContiTech before a potential exit.

Continental has been under pressure from investors to simplify its structure. The company operates four group sectors — Automotive, Tires, ContiTech and Contract Manufacturing — and the sale reduces that to three. Proceeds from the deal could be used to reduce debt, fund research and development in autonomous driving technology, or return capital to shareholders, though Continental has not specified its plans.

Market Context and Forward Outlook

The carve-out comes during a period of elevated M&A activity in the European automotive supply chain, as traditional suppliers restructure to adapt to the electric-vehicle transition. Continental's DAX-listed shares have gained roughly 12 percent this year through Thursday's close, outperforming the broader German index. The company reports second-quarter earnings on Aug. 5, where management is expected to provide additional detail on capital allocation following the ContiTech sale.

For Lone Star, the deal fits a pattern of private equity firms acquiring industrial divisions from larger conglomerates, applying operational leverage and seeking a sale or public listing within three to five years. The firm's prior investments in German industrials include the 2022 acquisition of specialty chemicals business Afton Chemical from NewMarket Corp.

This article is for informational purposes only and does not constitute investment advice.