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Automotive M&A in 2023 continued a slowdown from the highly active deals market of 2021 with reduced deal volumes and values. Deal volumes in 2023 dropped by approximately 30% over 2022 with average 2023 deal value decreasing by about 22%. Auto dealmakers are appearing cautious in their approach in the face of inflation, supply chain pressures, interest rate levels and the continued complexity of geopolitical matters. Market conditions continue to be top-of-mind, particularly within the automotive industry as recent UAW strikes have introduced increasing volatility and uncertainty surrounding labor supply.
The sector experienced a reduction in the number of megadeals (those greater than $5 billion), with the average value down from $10.7 billion in 2022 to $6.9 billion in 2023 (excluding the impact of the VinFast special purpose acquisition company (SPAC) deal) as the magnitude of leveraged financing necessary for these deals continues to appear difficult to secure.
Looking forward to 2024 — and as the automotive industry pushes toward an electric future — industry players will likely continue to seek opportunities through investments in electric vehicles and connected, autonomous, shared and electric vehicles (CASE) assets as well as consolidate scale through M&A. With stronger headwinds to obtain financing (i.e., cost of financing outweighing deal economics), companies may more strongly consider a path of divesting non-core parts of their portfolio to achieve liquidity needed to fund investment opportunities. The strategic focus is shifting to core, cash-generating operations as companies look to the future.
Suppliers within the sector facing liquidity concerns may also create additional opportunities for dealmakers through M&A, alliances or capital investments to manage a liquidity crunch while realizing benefits from strategic investments in new technologies.
As macroeconomic conditions persist, M&A strategy will likely augment organizations in reimagining business models and delivering value to stakeholders.
Note: The primary M&A data source used in the year-end outlook is S&P Capital IQ. This is a change from our past outlook reports.
“Ongoing economic and market hurdles will continue to push creativity in how auto and auto technology deals are sourced, financed and executed — creating exciting opportunities for dealmakers who seek to bring long-term value into their businesses.”