Automotive mergers and acquisitions activity was strong in the first half of 2011 and then tapered off in the second half of the year following Europe’s sovereign debt crisis and the natural disasters in Japan and Thailand, according to a new PwC publication Automotive M&A Insights: Driving Value. In 2011, 594 automotive deals were completed with a disclosed value of $45 billion, reflecting an increase compared to 2010, which had 520 completed deals totaling a disclosed value of $25 billion.
“The auto industry is primed for growth in M&A in the next few years,” said Paul Elie, U.S. automotive transaction services leader. “Since the second half of 2011, dealmakers have approached the market with increased conservatism given the looming economic challenges in the EU and uncertainty in the regulatory environment. As soon as the macroeconomic environment improves, we will likely see a wave of pent-up demand resulting in increased deal activity.”
Highlights from the PwC report includes:
Automotive vehicle manufacturers, suppliers and others
• M&A deal volume among vehicle manufacturers declined 5 percent with 86 deals closing in 2011, compared to 91 deals in 2010. Disclosed deal value in the vehicle manufacturing segment increased slightly over 2010 to $15 billion in 2011, from $12 billion in 2010.
• M&A deal activity among component suppliers increased 9 percent to 303 deals closed compared to 278 in 2010. Disclosed deal value in the supplier segment grew to $10 billion compared to $4 billion in 2010.
• Other automotive segments such as retail, aftermarket, rental/leasing and wholesalers realized a significant growth of 36 percent totaling 205 deals in 2011, compared to 151 deals in 2010. Disclosed deal value significantly increased by 131 percent totaling $19 billion in 2011, compared to $8 billion in 2010.
Financial and trade buyers
• Financial and trade buyer’s M&A mirrored the overall automotive deal market in 2011, increasing in the first half of the year and slowing the second half of the year.
• Trade buyers accounted for 434 deals in 2011 versus 379 in 2010. The disclosed deal value totaled $31 billion, which was an increase compared to $15 billion in 2010.
• Financial buyers accounted for 160 deals totaling $14 billion in 2011, compared to 141 deals totaling $10 billion in 2010.
Additionally, the report found that increasing competition from foreign companies is driving locals to pursue M&A deals as a strategic alternative to developing in-house technology. Key technologies in propulsion, safety, advanced electronics, and materials will likely experience the greatest interest among emerging Asian players.
“Strategic buyers are looking at M&A as an opportunity to grow globally,” said Mr. Elie. “As soon as there is more confidence in the market, we will likely see an increase in deals aimed at acquiring talent, technology capabilities, and market access as strategic buyers position their businesses for long-term success.”
Looking ahead, global automotive deal activity is positioned for growth in the next few years. This is largely attributable to a rise in fiscally sound strategic buyers with significant cash reserves and private equity buyers with large amounts of uninvested capital and a need for investment exit strategies. Equally important is the growth in light vehicle output, which is expected to reach 79.7 million units in 2012 and 86.2 million units in 2013, according to PwC’s Autofacts.