Automotive deals insights: Mid-year 2020

In the first half of 2020 automotive M&A activity faced uncertainty not seen since the Great Recession as deal value and volume declined 54% and 16%, respectively, from H1 2019.

Investments in CASE technologies (connected, autonomous, shared, electrified) continued to drive deal activity in the first half of 2020 as vehicle manufacturers and component suppliers alike announced large deals. The COVID-19 pandemic significantly impaired activity in the second quarter of 2020, but with its disruption come new opportunities for consolidation, executing inorganic strategic initiatives and distressed M&A.

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“The first half of 2020 saw automotive dealmakers continue their search for attractive assets to strengthen their technological capabilities in CASE technologies. Despite the COVID-19 pandemic, we expect technology to be a central driver of M&A in the second half of 2020 while a new deal landscape fosters tech-based alliances, strategic consolidation and distressed opportunities.”

Paul Elie, US Automotive Deals Leader

High level trends and highlights

  • Total deal value in H1 2020 amounted to $11.9 billion, down 54% when compared to H1 2019 ($26.3 billion). While deal volume fared slightly better – down 16% in H1 2020 to 350 deals from 415 in H1 2019 – the COVID-19 global pandemic headwinds stifled deal activity in Q2 2020 to the lowest level since the Great Recession.
  • Q1 2020 held its own as deal activity actually increased compared to Q1 2019 (up 4%), and value stood with other historical periods – albeit toward the lower end of the range – as 2020’s top deal was announced in Q1 2020. However, global lockdown and quarantine measures ensured decreased activity as deal volume dropped 36% in Q2 2020 compared to Q1 2020.
  • The top ten deals totaled $8.9 billion, accounting for 75% of the total deal value in H1 2020. There were no megadeals in H1 2020; H1 2019 saw one ($7.4B).

  • Vehicle manufacturers deal value fared well in H1 2020 as two of the top three deals were attributed to this sub-sector, led by Volkswagen’s acquisition of its remaining stake in Navistar for $2.8 billion and raising its interest in its Chinese JV by 25% for $1.2 billion to bolster its electrification strategy in China.
  • Consistent with prior periods, Parts and Components suppliers led auto sub-sectors in both value and volume in H1 2020, with 46% and 36% of the share, respectively. Additionally, deal volume in this sub-sector was up 9% from H1 2019, driven primarily by activity in South Korea and China in Q1 2020 and Q2 2020, respectively, despite its decrease in value from the comparable period.
  • Automotive Retail and Wholesale was the largest driver of lower volume in the period, averaging 26 deals a month in Q1 2020 and dropping to an average of ten deals per month in Q2. Across all sub-sectors April saw the largest single month swings during H1 2020, with a Q1 monthly average of 71 deals compared to 40 deals in April 2020. May and June showed glimpses of a recovery, jumping up to 48 deals, but much uncertainty remains with respect to a recovery.

  • Domestic deals provided the majority of H1 2020 deal value and volume. They contributed 79% of deal volume and 53% of deal value in H1 2020 and accounted for six out of the top ten deals in H1 2020.
  • Cross-border deals made up 21% of deal volume and 47% of deal value in H1 2020 and included the largest deal of 2020 – VW’s Traton subsidiary’s acquisition of Navistar International Corp. for $2.9 billion. This represents a flip from H1 2019, when cross-border deals represented 74% of volume and 57% of value.
  • The COVID-19 pandemic has resulted in a pivot to a multinodal world where the drivers of balkanization continue the decline of globalization. As cross-border deals become more complex, dealmakers will focus on securing supply chains and increased resiliency instead of global expansion.

  • Asia and Oceania dominated H1 2020 deal value and volume as both a target and acquirer region. The region was the most active acquirer with $5.2 billion or 44% share in terms of deal value, driven by Volkswagen’s deal activity in the region as they shore up their electrification strategy in China. The region also witnessed 4.2% increase in deal volume as compared to H1 2019.
  • North America as a target region exhibited second highest deal value of around $3.7 billion, driven by the US with two deals among the top ten. The number of transactions decreased by 24% in H1 2020 as compared to H1 2019.



Automotive sub–sector analysis

Vehicle manufacturing experienced the lowest decline in volume among the auto sub-sectors and saw a slight increase in value compared to H1 2019 as OEMs continued their investment in CASE technologies. This includes two deals from Volkswagen AG as they bolster their electric vehicle strategy in Asia while also contributing the largest deal of H1 2020 with their acquisition of Navistar International as they look to expand their commercial vehicle offerings. Financial investors remain attracted to auto-tech assets as H1 2020 saw Evergrande, a Chinese real-estate investor, hedge its real estate investments by purchasing the remaining uncontrolled interests in National Electric Vehicle Sweden AB, which manufacturers electric vehicles among other electrification components.

Parts & components manufacturing contributed the most to the sector in terms of the deal value and volume in H1 2020, driven by five of the top 10 deals in Q1 2020. It is also the only sub-sector to witness volume growth (8.5%) from H1 2019. We see this sub-sector continue with investments in new technologies as evidenced by VW’s acquisition of Gotion High-Tech, a battery manufacturer, and BorgWarner’s acquisition of Delphi Technologies to strengthen its electric powertrain capabilities. We expect continued auto-tech investments and alliances, but also anticipate an uptick in supplier consolidation for the remainder of the year as challenged component suppliers become acquisition targets for corporate buyers looking to make strategic investment and as private equity investors look for good opportunistic plays.


Financial vs. strategic investors

Strategic investors contributed 94% and 79% share of total deal value and volume, respectively, in H1 2020. The top 4 deals of the year are all strategic investors, driven by the $5.2 billion in acquisitions executed by Volkswagen AG. While financial investors’ share of the deal activity has remained within its historical range (20-30%), we believe private equity is well positioned for the second half of 2020. At a time when the price of assets should experience a correction, financial investors have access to record levels of capital for deals. Those willing to consider how this health crisis could change or accelerate the direction of the automotive sector will be better positioned to make deals with lasting impacts and returns similar to their approach in the aftermath of the Great Recession.


Automotive deals outlook

The automotive sector has been one of the most heavily challenged sectors by the measures implemented to adapt to COVID-19. A steep short-term drop in demand and disrupted (and complex) supply chains have pressured a sector already dealing with enormous changes to its traditional business model in the form of electrification, autonomous vehicles and ride-sharing services. Deal makers are having to refocus their M&A strategies to reconnect production and supply chains, all while not losing sight of their technology strategies and investments as the pandemic accelerates adoptions of new technologies. The industry will face a difficult 12 to 18 months with 2020 global GDP growth expected to decrease 6-8% from last year, record unemployment levels, and the threat of a second wave of COVID-19 creating supply disruptions and workplace health restrictions. But through these difficult times winners and losers will emerge that will drive M&A activity for the remainder of the year.

Vehicle manufacturers who have made strategic bets to transform their business models from the introduction of CASE technologies will continue to look for M&A opportunities to help strengthen their competitive position, but also fund their existing investments. With banks cautious to extend credit to capital intensive automotive players, M&A will serve a dual purpose. Divestitures of non-core assets will enable realignment of business strategies to foster competitive advantages and will provide the capital injection needed to support new investments in technology. Alliances and joint ventures, which have become more prominent in the last few years, will continue as manufacturers look to share the costs of development and hedge the risk of market acceptance for their technologies. 

Component suppliers face a challenging environment and we anticipate a significant rise in acquisitions resulting from distressed opportunities later in 2020 and into 2021. Some suppliers may be forced into M&A to secure supply chains, and others into investments that can accelerate their digital transformation. Regulatory and sustainability driven policies will further increase M&A demand to strengthen capabilities and supply in next generation materials and technology, and the continued use of M&A to access talent and specialized skills – particularly to ensure the best results from technology investments.

But the disruptions faced from the current health crisis are not limited to vehicle and component manufacturers. Retailers, wholesalers and businesses with service offerings in repairs and maintenance all face uncertainty as new ways of being force change within the industry. Those who have made investments in technology to help facilitate contactless purchasing and e-commerce or those who have led the way in crafting what this sub-sector will look like in an age of electric and autonomous vehicles are anticipated to emerge as winners as consolidation of this sub-sector continues.

The second half of 2020 will certainly be an exciting period of time in the automotive industry, albeit clouded by economic unknowns and health and social matters facing society. Similar to the aftermath of the Great Recession, it will be critical for government stimulus to target the most vulnerable channels of the automotive industry, and broader economy, to sustain a recovery. We’ve seen swift and significant governmental actions, but more is needed to combat a second wave and mitigate a prolonged period of high unemployment which would deteriorate consumer demand. Fortunately, key players in the industry have entered this recession with stronger balance sheets and financial standing than that of the Great Recession, bringing hope that a rebound in the second half of 2020 will materialize.

About the data

The information presented in this report is an analysis of deals in the global automotive industry. Deal information was sourced from Refinitiv and includes deals for which targets fall into Refinitiv’s automotive mid-industry. Certain adjustments have been made to the information to exclude transactions which are not specific to automotive or incorporate relevant transactions that were omitted from the SIC industry codes.

This analysis includes all individual mergers, acquisitions, and divestitures for disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake purchases, and acquisitions of remaining interest announced between July 1, 2017 and June 30, 2020, with a deal status of completed, partially completed, pending, pending regulatory and pending completion, and excludes all rumors and seeking buyers. Additionally, transactions that are spin-offs through distribution to existing shareholders are included.

Percentages and values are rounded to the nearest whole number which may result in minor differences when summing totals.

Contact us

Paul Elie

Industrial Products Deals Leader, PwC US

Ray Telang

Automotive Leader, PwC US

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