The automotive sector saw private equity firms dramatically shift their focus from component suppliers to the aftermarket in the last year, according to a new report issued today by PricewaterhouseCoopers LLP. They are now clearly favouring niche investments with more defendable positions and which traditionally generate reliable cashflows.
As predicted by PricewaterhouseCoopers in 2005, there has been reduced private equity interest in the manufacturing side of the auto business. Rising material costs have made it more difficult for these capital-intensive businesses to generate the cash needed to service debt. This is particularly evident in the components sector, where private equity-backed deals now represent just 15% of the total value, down from 30% in 2005 and 61% in 2004.
The report also looks at how the automotive industry has experienced the re-emergence of trade buyers. Following an all time low level of interest in the previous two years they have returned to the market, this time looking for bolt on or specialist acquisitions. They made their most triumphant return to the components sector, undertaking all five of the largest deals in the first half of 2006. While this return helped drive deal numbers up 20% in 2005, average deal size actually fell slightly.
