Global automotive industry merger and acquisition deal value increased 24 percent in the first half of 2013 to $13.1 billion total, compared to the same period in 2012, according a recent analysis.
Still, according to PwC’s Automotive M&A Insights: Mid-Year Report 2013, automotive deal activity continued to slow down in comparison to the the past two comparable periods.
In the first half of 2013, 222 deals closed with a disclosed deal value totaling $13.1 billion, compared to 264 deals closed with a disclosed value of $10.6 billion during the first half of 2012, PwC reports. That reflects a 16 percent decline in volume.
In contrast, there were 303 completed deals with a disclosed value of $18.8 billion in the first half of 2011, representing a 13 percent decline in volume year-over-year as compared to the first half of 2012.
Still, global automotive M&A is poised for future growth, according to Paul Elie, PwC’s U.S. automotive transaction services leader.
“As Europe and developing markets recover, we anticipate that the number of M&A deals will increase,” Elie says. “And as auto companies compete to introduce the latest innovative vehicles, we expect that investment in new technologies will likely emerge as a primary growth driver.”
VALUE DEAL UP
While the number of deals is not up, the value of each deal is.
Globally, the average disclosed deal size during the first half of 2013 upped to $171 million, a 72 percent increase over the first half of last year and more in line with pre-recessionary investment levels, Elie says.
Meanwhile, small and mid-size deals continue to dominate the global automotive M&A landscape. Only two mega-deals valued at less than $1 billion were transacted during the first half of 2013. PwC says that is consistent with the average seen in the past three comparative periods.
Financial buyers also made significant investments in the automotive sector, with $6.8 billion in deals closed during the first half of 2013 — the highest share of deal value injected by financial buyers in the past five years.
PwC continues to maintain a positive outlook for automotive M&A, a projection primarily driven by the underlying optimistic view of global automotive sales.
To meet this level of demand, assembly is expected to add nearly 24 million units between 2013 and 2019, for a compound annual growth rate (CAGR) of 4.35 percent.
Key factors that will likely jump-start automotive M&A growth, according to PwC, include:
- High levels of liquidity on corporate balance sheets;
- Strategic initiatives to expand market share and grow customer, technological and product portfolios;
- Resolution of sovereign debt issues in European Union member states;
- Strong economic recovery and pent-up demand in developed countries such as the U.S.;
- Resumption of trend line economic growth in China and India;
In particular, Elie tells Industry Today that the following three global “mega trends” will drive the auto industry:
- Technological advancement – “Technological advancements are available or soon will be available in the global marketplace,” he says. “Think infotainment and alternative power trains and electric vehicles and driverless vehicles. There are examples of what is going to be available. It’s all about how quickly you can advance your technology to meet demands.”
- Shifting global economic power – “Where’s the demand for those products going to be? If you look at by 2050 the GDP of the E7 is going to be twice that of the G7,” Elie says. “Now, if you add up the developing economies and your compare those to the mature or developed economies, in today’s worth the GDPs are the same. By 2050, those developed countries are going to be twice the size of our economy and the developed countries’ economies. So that’s where the demand is going to be, and you need to be prepared to meet that demand.”
- Demographic shifts – “When you look at demographic shifts, you look at where we’re going to see population growth. That’s who is going to purchase,” he explains. “And when you look at the developed countries, you have aging populations. When look at the developing, or E7, countries, you’re going to have much more youthful populations and much greater population numbers. You need to tailor your product and your value proposition to the population of people if you want to keep pace with the growth of the industry.”
- Elie projects that the North American market, which was the second largest target region during the first half of 2013, will continue to be strong.
The region in the first half of this year reportedly transacted 50 percent more deals with cross-border acquirers than it did in the first half of 2012.
Elie says localization of vehicle assembly in North America is a trend that’ll likely to drive an increase in M&A activity. The exportation of vehicle production is primarily being driven by foreign OEMs looking to reduce the risk of currency volatility and European manufacturers seeking a more stable and growing environment.
“If you look at assembly volumes, global 2012 growth was up 6 percent. Europe was down 5 percent,” Elie explains. “So, generally speaking, the growth in China and Brazil and developing countries was reduced to single-digit growth. What that tells you is that North America has very strong growth – the U.S. with 14 percent, Canada with 5 percent, and Mexico with 10 percent.”
He adds, “We continue to see strong growth, probably not at the same pace, probably at a lesser pace, but we do see strong growth in North America.”
About PwC’s Automotive Practice
PwC’s global automotive practice leverages its extensive experience in the industry to help companies solve complex business challenges with efficiency and quality. One of PwC’s global automotive practice’s key competitive advantages is Autofacts®, a team of automotive industry specialists dedicated to on-going analysis of sector trends. Autofacts provides our team of more than 4,800 automotive professionals and our clients with data and analysis about automotive production and capacity to assess implications make recommendations, and support decisions to compete in the global marketplace.