Drive value – Automotive M&A insights 2008

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Automotive M&A Insights is an annual review of M&A activity and key trends within the global automotive industry.

This edition explores the automotive transactions that closed during 2008, the underlying drivers of these deals and the implications of emerging trends on future M&A activity.

The automotive industry is cyclical, a fact that was forgotten by many in the industry, especially after witnessing years of tremendous global growth. With recent double-digit volume declines in major markets and several global automakers struggling to maintain solvency, 2008 ushered in a downturn of a magnitude not seen by the industry for decades. This decline was also felt in the deal market, with overall global deal flow slowing and transacted deal value plummeting by the end of the year.

As we enter 2009, the duration and depth of this downturn remains uncertain. However, the availability of financing combined with a return of consumer confidence will likely be key preconditions for an upturn. In the interim, the automotive industry will require significant restructuring in order to adapt to current market conditions. M&A will undoubtedly play a key role as vehicle manufacturers (VMs), component suppliers and companies throughout the automotive value chain look to remove excess capacity, raise capital, and reposition their businesses. While the restructuring process will not be easy, more than likely it will force casualties among automotive companies. A restructured auto industry will be better prepared and positioned to profit from the next growth cycle.

The lack of available credit defined the auto industry in 2008, with continued constraints in financing remaining the number one concern for both the industry as well as dealmakers. In the M&A space, increased distress and restructuring along with broad structural shifts have increased companies’ needs and desires to execute transactions. Although, until access to capital returns, M&A activity is likely to remain depressed.