Automotive M&A Hit the Road Strong in First Quarter

26 April, 2018

Jeff Zaleski
US Automotive Deals Leader, PwC US

Driven by upcoming regulation changes and technology advances, global automotive M&A activity in the first quarter of 2018 was more than double the quarterly average over the past three years and a 272% increase in value over Q4 2017. The $30-billion in mergers, acquisitions, and other investments in the auto sector continued the momentum built in 2017, with 217 deals announced and a jump of 383% in the average disclosed deal size, to $445 million. One thing is becoming clear: companies are looking to the future –and betting on it.

Vehicle manufacturers, component manufacturers, and technology companies continue to invest in mobility platforms bringing with it changes to business models and products. Financial buyers and venture capital continue to chase yield through tech-oriented companies and start-ups looking to provide solutions to the emerging auto-tech scene. In Q1, the increase in value and average deal size was driven by two megadeals (transactions worth more than $5 billion), compared to zero in the previous quarter. Both of these megadeals and the six of the top 10 deals were transacted by the Parts & Components Manufacturing category, which contributed to 80% of global automotive deal value this quarter. Vehicle Manufacturing saw deal value jump to a three-year high of $4.6 billion, while Maintenance, Repair and Other Services saw a 57% decrease in activity from rental and fleet management companies.

Strategic investors continue to drive the majority of deal activity by accounting for 57% percent of deal value and 71% of volume in Q1 2018. Despite this, financial buyers have record high amounts of dry powder available. This has contributed to the increase in their share of total deal value, which has averaged 43% over the prior two quarters – up significantly from the three-year average of 25%. Financial buyers continue to chase yield through tech-oriented companies and start-ups looking to provide solutions to the emerging auto-tech scene. We expect continued investments in alternative powertrains, connected car technologies, A.I. and predictive analytics, along with light-weighting composites to ensure vehicles meet emissions targets as embedded technology add weight to vehicle platforms.

The Asia and Oceania region remains the most active acquirer by volume, especially as Asian vehicle manufacturers look to invest in auto-tech. We did not see as much cross-border activity as expected from the end of Q4 2017. Instead, our analysis for Q1 2018 showed that there was a large growth in domestic transaction value within country borders, up to 90% from the three-year average of 63%. However, given the global nature of this industry, we expect continued focus on cross-border activity buoyed by a potential increase in Europe and the US.

The deals activity in Q1 2018 set the M&A stage nicely for the remainder of the year. Despite tightening of monetary policy and turbulent trade discussions, we expect to see increased deal activity in the US as a result of benefits from the tax reform and the continued strong economy. Our latest PwC Autofacts show that the industry is expected to grow at a 2.8% CAGR through 2024, indicating that the automotive industry continues to be an attractive investment given strong unit demand for vehicles.

The full Q1 2018 Automotive deals report can be viewed here.