Signs of Growth on the Horizon in the Next Few Years
Automotive mergers and acquisitions (M&A) activity in the first half of 2012 has given way to macroeconomic pressures, resulting in passive M&A activity in 2012 overall, PwC reports in Driving Value: Automotive M&A Insights 2012. The automotive industry’s overall M&A deal volume declined 18 percent and deal value declined by 33 percent, compared to 2011. In comparison, in 2012, global cross-sector M&A activity declined less than the automotive sector, with deal volumes declining by seven percent and deal value declining by 17 percent compared to 2011.
While some regions continue to show signs of stabilization and profitability after the recession in 2008-2009, the economic crisis in Europe is still an ongoing issue of concern. Europe’s share of global automotive deal volumes is down for the second straight year, while Asia continues to grow its presence, becoming the largest acquirer region in 2012.
With Europe’s debt crisis weighing heavily on the European automotive sector, automotive M&A activity declined in terms of deal volume and value when compared to 2011, when a total of 594 deals were completed for a disclosed value of $44.9 billion. The automotive sector transacted 98 deals during Q4 2012, marking the third straight quarter of decreasing deal volume.
“Uncertainty is hurting the deal value more than the actual recession,” said Paul Elie, U.S. automotive transaction services leader. “There is increased speculation resulting from the looming economic challenges in Europe and many unknowns in the regulatory environment. As soon as the macroeconomic environment improves, we likely will see a wave of pent-up demand resulting in increased deal activity.”
The PwC report shows:
Automotive vehicle manufacturers, suppliers and others
Vehicle manufacturers experienced their strongest year in the past five years, in terms of volume and disclosed value, while seeking cost synergies such as technology and platform sharing through strategic alliances. Component suppliers saw steady transaction volumes in the first half of 2012, but declined significantly in the second half. The most active region for vehicle manufacturers was Asia, where 41 of the 97 deals in 2012 were transacted. The “others” category, including retail, aftermarket, rental/leasing and wholesale, etc., experienced a significant slowdown in 2012. Financial and trade buyers
Financial buyers’ share of M&A volume declined to 24 percent, which represented the lowest levels witnessed since the depths of the recession. Financial buyers continued to shift their focus away from Europe and toward U.S. and Asian assets. Trade buyers increased their focus on vehicle manufacturers in 2012 and also shifted their focus away from Europe toward Asian assets. Regional snapshot
New car demand in the Europe Union and European Free Trade Association (EU+EFTA) declined by 7.8 percent to 12.5 million units in 2012, while new car sales in Europe stalled at 3.5 units below its 2007 peak. North American acquirers’ share of global M&A increased from 20 percent in 2010 to 27 percent in 2012, while North American entities achieved 34 out of 102 cross border deals. Asia made up more than one third of the global automotive M&A volume during 2012, with most of the activity transacted within its own region. Emerging countries like China and India are likely to capitalize on the opportunity to acquire technology or market access at favorable valuations in Europe. Additionally, the report found that Asia topped Europe in 2012 as the largest global acquirer. Europe was the largest beneficiary of cross border investments with 47 inbound deals transacted in the region during 2012, 43 percent of which were investments by U.S. companies.
“With domestic sales slowing in both China and India, buyers from these markets may look for opportunities to augment domestic sales,” continued Elie. “These buyers are likely to pursue technology deals to compete globally, as well as to effectively compete with foreign companies in domestic markets and more inclined to close deals in more stable economic climates such as the U.S.”
Looking ahead, PwC’s positive outlook for M&A stems from the forecasted 30 million units estimated to be added to the industry between 2012 and 2019. Key factors predicted to spark automotive M&A growth are:
- High levels of liquidity on corporate balance sheets
- Strategic initiatives to expand market share and grow customer, technological and product portfolios
- Resolution of Europe’s sovereign debt issues of its member states
- Strong economic recovery and pent-up demand in developed countries
- Resumption of trend line economic growth in China and India
For more information on PwC automotive deal capabilities and to download PwC’s publication Driving Value: Automotive M&A Insights 2012, visit: www.pwc.com/auto.
