With record-breaking numbers in the first half of 2015 in global automotive merger and acquisition (M&A) activity, the financial strength of the automotive industry is looking very positive.
Deal volume and value continue to grow with 276 deals in the first half of 2015 – a 10 percent increase from 2014 and the highest volume transacted since 2011 – and $34.1 billion total aggregate disclosed value – a 24 percent increase from 2014 and the highest value of deals in the past decade.
“The first half of this year marks the third consecutive comparative period of increasing average automotive deal size, and deal volume continues to be strong with little sign of slowing down.” Said Paul Elie, U.S. Automotive Deals Leader, PwC. “The M&A activity should continue to stay strong as valuations rise and companies continue to invest in innovative technologies for their next-generation products”.
While there has been a significant increase in overall average deal value, it’s primarily driven by this year’s seven megadeals – compared with five in 2014 – totaling an aggregated disclosed value of $26.6 billion. Additionally, in the first half of 2015, the average global auto deal size increased 58 percent from $284 million to $449 million. Showing a similar trend is global cross-sector M&A activity, increasing in both deal volume and value by 10 percent and 40 percent respectively, compared with 2014.
Additionally, local deals dominated the M&A landscape across all regions in the first half of 2015, as 83 percent of the total deal volumes were local. However, only 53 percent of the deal value – or $17.94 billion – was attributed to these local deals. This is mainly due to a large cross-border megadeal transaction, as it inflated the value of non-local deals. Further, the United States, European and Asian assets experienced the greatest benefit from the megadeals, as all seven deals were between a target and acquirer from those regions.
In terms of the most active segments of the automotive industry, component suppliers’ deal value climbed to $20 billion – an increase of 97 percent from 2014 – while vehicle manufacturers’ deal value declined to $4.1 billion – a decrease of 69 percent from 2014. Others including retail/dealership, aftermarket, rental/leasing and wholesale, however, also saw an increase in deal volume and value.
In addition, financial buyers’ share of M&A activity increased for the second consecutive year to 31 percent – the highest it’s been over the review period – while trade buyers deal value and volume remained steady compared with 2014.
While the economic markets around the world will determine the projected growth in the coming years, there are few signs of slow down for the M&A activity.
Vehicle assembly worldwide in 2015 – despite recalls, and political and economic uncertainly – continues to grow at a modest pace. Mature markets are sustaining global growth by investing in expanded capacity at existing and new plants, despite the accelerated decline in markets like Brazil and Russia, and a slowdown in China. However, PwC Autofacts anticipates long-term outlooks to remain positive as the industry is expected to add 20 million units of production by 2021, a compounded annual growth rate of 3.5 percent. This will require global automakers to adjust production strategies around the world, and in turn, create the potential to pursue partnerships and develop collaborative strategies suitable for the pace of global change.
Other key factors PwC expects to assist with moving M&A growth forward include:
· High levels of liquidity on corporate balance sheets
· Strong economic recovery and pent-up demand in developed countries, such as the U.S.
· Strategic initiatives to expand market share and grow customer, technology and product portfolios
· Financial investors to continue to see opportunities for growth in the automotive industry
For more information, visit PwC’s automotive industry website at www.pwc.com/auto.
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