Automotive M&A on Pace for Record Year Despite Second Quarter Slowdown

23 August, 2018

Jeff Zaleski
US Automotive Deals Leader, PwC US

At the midway point of 2018, global automotive M&A activity has already reached 84% of the deal value we saw in all of 2017. However, uncertainty lies ahead by way of regulatory and geo-political pressures weighing on the industry. Here are our topline findings for Q2 automotive deal activity:

  • Value: $14.1B worth of activity, which is down 46% compared to Q1 2018
  • Volume: The number of announced deals was 192, down roughly one-quarter from Q1 2018
  • Average deal size: With a dip in value and volume, the average deal size fell 47% sequentially to $195M

Thanks to a stellar first quarter, automotive deal value is up 29% for the year to $40B. The increase in value was driven by the three megadeals (transactions worth more than $5 billion) we’ve seen this year. All three megadeals were transacted by Parts & Components Manufacturers and account for $22B, more than half of total deal value so far this year. The same category account for nearly three-quarters of 2018 deal value with Vehicle Manufacturing, Automotive Retail & Wholesale and Maintenance, Repair & Other Services accounting for the remaining 27% of deal value.

Over the past few years, these suppliers have generated strong cash flows due to an increase in the number of vehicles being produced. This has resulted in higher cash balances and lower debt levels, creating a ripe environment for deal activity. A recent analysis of ours found that cash balances are up over 8% from last for public suppliers and average debt to EBITDA ratios are below 2.1.

Strategic investors continue to lead the way when it comes to both deal value and volume. However, in recent quarters, financial investors have shown a growing interest in the automotive industry and accounted for 40% of deal value in Q2. Coupled with Q1, financial investors are responsible for almost half of all deal value this year. This trend is likely to continue as financial buyers have record high amounts of dry powder available.

On a regional basis, North American share of target and acquirer value is on the rise. In Q2, North American and Asia & Oceania acquirers equally contributed to deal value. However, North America’s share of deal volume dropped along with the UK and Eurozone, potentially disrupted by U.S. tariffs, causing acquirers to assess the impact on their supply chains and operating models instead of pursuing deals. Despite the tariffs, inbound activity to these regions remains robust.

As trade discussions continue to dominate headlines, we could see a new trend of acquisitions or alliances to help realign supply chains to relieve the burden of tariffs in the major consumer markets. Despite regulatory and geo-political risks, we expect to see continued high levels of M&A activity within the automotive sector driven by increased capacity to transact deals by strategic and financial buyers.

The full Q2 2018 Automotive deals report can be viewed here.