M&A will be strategic tool to achieve global growth in 2012
DETROIT, May 3 2012 ― Automotive mergers and acquisitions (M&A) activity was strong in the first half of 2011 and then tapered off in the second half of the year following Europe's sovereign debt crisis and the natural disasters in Japan and Thailand, according to a new PwC publication Automotive M&A Insights: Driving Value. In 2011, 594 automotive deals were completed with a disclosed value of $45 billion, reflecting an increase compared to 2010, which had 520 completed deals totaling a disclosed value of $25 billion.
The European debt crisis and reduction in economic forecasts, coupled with changes in the financial regulatory environment, also increased the global cost and availability of capital. Capital requirements imposed by the US and European stress tests further reduced the availability of capital that financial institutions had to lend. As a result, automotive deal activity was not as robust as in the first half of 2011.
Following a boom of economic growth in 2008 and 2009, China and India were faced with escalating inflation rates in 2011. To combat this, both countries adopted measures to drain liquidity from their markets and increase interest rates. As a result, economic growth and automotive sales in these two large markets slowed considerably. Without the anticipated rapid growth from these two markets, declines in Europe and other markets significantly lowered expectations for recovery of global auto production and sales volumes, which directly impacted the attractiveness of automotive sector M&A.
Despite challenges in 2011, share of disclosed deal values for European and U.S. targets increased from 55 percent in 2010 to 72 percent in 2011. European targets led the trend with the largest share at 39 percent of disclosed deal value compared with 24 percent in 2010. Deal volume focused on targets in the European Union with a 43 percent share in 2011.
"The auto industry is primed for growth in M&A in the next few years," said Paul Elie, U.S. automotive transaction services leader. "Since the second half of 2011, dealmakers have approached the market with increased conservatism given the looming economic challenges in the EU and uncertainty in the regulatory environment. As soon as the macroeconomic environment improves, we will likely see a wave of pent-up demand resulting in increased deal activity."
The PwC report shows:
Automotive vehicle manufacturers, suppliers and others
Financial and trade buyers
Additionally, the report found that increasing competition from foreign companies is driving locals to pursue M&A deals as a strategic alternative to developing in-house technology. Key technologies in propulsion, safety, advanced electronics, and materials will likely experience the greatest interest among emerging Asian players.
"Strategic buyers are looking at M&A as an opportunity to grow globally," continued Elie. "As soon as there is more confidence in the market, we will likely see an increase in deals aimed at acquiring talent, technology capabilities, and market access as strategic buyers position their businesses for long-term success."
Looking ahead, global automotive deal activity is positioned for growth in the next few years. This is largely attributable to a rise in fiscally sound strategic buyers with significant cash reserves and private equity buyers with large amounts of uninvested capital and a need for investment exit strategies. Equally important is the growth in light vehicle output, which is expected to reach 79.7 million units in 2012 and 86.2 million units in 2013, according to PwC’s Autofacts. Although compelling, these growth drivers will only come into play with the successful resolution of key macro-economic factors including:
For more information on PwC automotive deal capabilities and to download PwC's publication Driving Value: Automotive M&A Insights 2011, visit: www.pwc.com/auto.
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.
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