Automotive transactions and trends
Global automotive deal activity at a two-year high
In 2013, automotive players adopted a cautious approach toward inorganic growth and focused on optimizing product portfolios and internal business structures. Meanwhile, 1Q14 has started on a positive note with deal values hitting a two-year high on the back of big-ticket investments by European automakers and suppliers in increasing their stakes in JVs and subsidiaries to realize complete synergy benefits from combined businesses.
Other 1Q14 highlights:
- The automotive companies that responded swiftly to the weak economic climate by focusing internally are now in a better position to capitalize on growth as economic conditions improve.
- Some European automakers are still struggling with mounting losses and have resorted to rescue capital investments by local governments and other international shareholders.
- Financially strong automotive suppliers continue to acquire business units on sale to expand their presence in high-growth segments and markets.
- Looking ahead, transactions expectations in the automotive sector continue to rise driven by positive economic sentiment, enhanced credit availability as well as increased confidence in the number of opportunities, quality of opportunities and likelihood of deals closing.
- BRIC is expected to continue being the top choice for acquisition capital deployment with a focus on gaining market share.
Automotive sub-sector transactions analysis and outlook
Car and truck manufacturers (OEMs)
- OEM deal values grew 3 times y-o-y and 14 times q-o-q driven by the big-ticket deals from European automakers aimed at improving operational efficiency and synergy benefits with complete integration of subsidiary businesses.
- Meanwhile, deal values increased by 27% y-o-y and 75% q-o-q, indicating a substantial jump in average deal size.
- Germany, Italy and China were the largest acquirer countries with a 93% share in deal values.
OEMs are expected to adopt a cautious approach toward deal making with a focus on restructuring of operations, synergy savings generation, expansion of geographic footprint and getting access to energy efficient technology.
Parts and equipment manufacturers (Suppliers)
- Supplier deal values grew 2.3 times y-o-y and 55% q-o-q on the back of continued portfolio rationalization by large suppliers in the US and Europe. These divested business units were acquired by suppliers looking to expand presence in new geographies or related business lines.
- UK, Germany and the US were the largest acquirer countries with a 92% share in deal values, while Germany and the US were the largest target nations with a 92% share.
Supplier transaction activity is expected to be focused on the scaling-up of global presence, liquidation of non-strategic business divisions and gaining access to new safety and electronics technologies.
Car and truck sales and repair (Retail and aftermarket)
- Retail and aftermarket deal values increased by 30% y-o-y, while it declined by 22% q-o-q. As compared to this, deal volumes declined by 10% y-o-y, indicating an increase in average deal size.
- Transaction activity was driven by the need to provide consolidation and expansion of distribution networks in emerging markets, enabling integrated services in the digital marketing field, and private equity (PE) investments.
- China was the largest target nation accounting for around two-thirds of deal values.
The need to enhance distribution network in emerging markets, improve customer experience through digital marketing solutions, provide integrated connectivity services and PE investments are expected to drive retail and aftermarket segment deals.
For EY’s key considerations and implications download complete report here.