Global Automotive Industry M&A Activity Shows Significant Increase During First Half of 2011, According to PwC

Deals likely to gain momentum as the market stabilizes and industry participants vie for global leadership

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Sep 13, 2011, 08:00 ET

DETROIT, Sept. 13, 2011 /PRNewswire/ -- The global automotive industry merger and acquisition (M&A) deal market shows a significant increase in deal value as observed during the first half (H1) of 2011, according to PwC's automotive transaction services practice. In H1 2011, 303 deals closed with a disclosed value of $18.8 billion; a significant upswing compared to H1 2010, which had the lowest disclosed deal value in five years.

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"We are seeing a return to more normalized levels of M&A in the automotive sector, similar to those prior to the downturn," said Paul Elie, U.S. automotive transaction services leader, PwC. "We are also seeing increased M&A activity in the first half of 2011 as a result of pent up demand created in 2010 by cautious acquirers and divesters looking for better transaction multiples."

Major automotive markets around the world continue to show signs of stabilization and recovery during H1 2011, allowing industry volumes and profits to recover. During the downturn, industry participants embarked on comprehensive restructuring, divestiture, and investment plans to better align their businesses with value creation and growth strategies. Given the positive outlook and return to profitability, the market is starting to see these plans come to fruition.

"Vehicle Manufacturers," while more active in the deal market during H1 2011 compared to H1 2010, transacted far fewer deals compared to the "Component Suppliers" and "Others" categories. This trend is indicative of the level of consolidation that has already taken place among the ranks of vehicle manufacturers, especially across developed markets, to form large global automakers and/or large global alliances. On the other hand, significant fragmentation still exists in the "Component Manufacturers" and "Others" categories, offering opportunities for consolidation. Compared to H1 2010, fewer "Component Suppliers" deals were transacted, but their cumulative disclosed deal values exceeded H1 2010 levels. Deal volumes for the "Others" category, which includes retail, aftermarket, rental/leasing and wholesale, etc., has seen a significant recovery. While deal value for the category exceeded pre-recession levels, it was mainly attributable to two major deals with a combined value in excess of $10.8 billion.

From a regional perspective, Europe was active in the deal space and was home to 42 percent of global deal volume. Meanwhile, Europe acquirers accounted for 42 percent of global disclosed deal values and 48 percent of cross border disclosed deal values. Although a majority of the global deal volumes were related to European targets, the US was home to both the largest share of disclosed global deal value at 51 percent and disclosed cross border investment at 64 percent. Asia, a big beneficiary of cross border investments during 2010, experienced a significant decline in inbound investments and in fact witnessed a net outflow based on disclosed deal values.

Financial buyer deal volume has rebounded to H1 2007 levels. While their disclosed deal value also appears to have rebounded back to H1 2007 levels, it was predominantly driven by a single transaction valued at $6.3 billion. Among financial buyers, entities from Europe and US drove much of the deal activity accounting for 67 percent of global financial buyer volumes and 81 percent of their disclosed deal values. While the largest volume of transaction activity by financial buyers was located in Europe, the largest share of financial buyer capital was expended in acquiring US-based assets.

Trade buyers continued to engage in an increasing number of deals, but continued to be strategic in their acquisitions with most deals involving specific product lines, technologies, or geographies. This is likely to remain the status quo until the credit environment eases and the global market recovers in a meaningful way. Among trade buyers, "Component Suppliers" and "Others" categories accounted for 50 percent and 31 percent of deal volumes, respectively. Of the 224 deals transacted by trade buyers, 177 deals were intra-regional, indicating that market consolidation was most likely the underlying rationale.

Outlook of deal activity

The auto industry and its supply base continue to build on positive momentum gained in the second half of 2010. Increased production levels and the return to profitability in the market have helped drive increased deal activity as trade buyers focus on consolidation and building scale.

"Globally, the industry is poised to grow rapidly, with annual light vehicle assembly approaching 104 million by 2017, representing a growth in excess of 45 percent," said Sudarshan Mhatre, PwC's senior automotive analyst, Autofacts. "As the marketplace continues to improve, there will be an increasing number of strategic buyers with the financial resources to execute deals and we expect a renewed focus on the more cyclical sectors like the auto supply base. Moreover current levels of uninvested capital at private equity funds will also drive higher financial buyer activity in automotive M&A."

"The first half of 2011 has shown M&A in automotive is on the rebound," said Elie. "We will continue to see an increase in M&A activity in the second half of 2011 and a return of larger deals in the automotive sector in the coming 12 to 18 months."

About PwC's Automotive Practice

PwC's global automotive practice leverages its extensive experience in the industry to help companies solve complex business challenges with efficiency and quality. One of PwC's global automotive practice's key competitive advantages is Autofacts®, a team of automotive industry specialists dedicated to ongoing analysis of sector trends. Autofacts provides our team of more than 4,600 automotive professionals and our clients with data and analysis to assess implications, make recommendations, and support decisions to compete in the global marketplace.

About Autofacts®

Autofacts, PwC's automotive forecasting service, is a provider of automotive market analysis, strategy development, and competitive intelligence to the world's leading vehicle manufacturers, automotive suppliers, and support organizations. Autofacts service offerings are available on-demand, for one-time purchase and through an annual subscription basis to access the on-line portal with Autofacts' proprietary data query tool. For more information regarding Autofacts, please visit their website at www.autofacts.com.

About the Transaction Services Practice

The PricewaterhouseCoopers Transaction Services (TS) practice provides due diligence for M&A transactions, along with advice on M&A strategy and integration, divestitures and separation, valuations, accounting, financial reporting, and capital raising. With approximately 1,000 deal professionals in cities in the U.S., and a global network of over 6,000 deal professionals in 90 countries, experienced teams are deployed with deep industry and local market knowledge, and technical experience tailored to each client's situation. The transaction services team can be involved from strategy to integration and employ an integrated business approach to uncover the realities of a deal. The field-proven, globally consistent, controlled deal process helps clients minimize their risks, progress with the right deals, and capture value both at the deal table and after the deal closes. For more information, visit www.pwc.com/ustransactionservices.

About the PwC Network

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information.

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SOURCE PwC