2. WelcomeIt is our pleasure to provide you with the 2012 Automotive M&A Insights edition of Driving Value, PwCs annual review of mergers and acquisitions (M&A) activity and key trends within the global automotive industry. This publication explores global automotive transactions and key trends within the global automotive sector, including: A review of 2012 automotive deal activity among vehicle manufacturers, suppliers, retailers, vehicle nanciers, and other related sectors. Key trends that impacted the deal market include: the uncertainty of the outcome of the presidential election, the scal cliff scenario in the US, the slowdown in economic growth and transition power in China, and the Europe sovereign debt crisis. A look at the transaction activity by sector and region. Outlook of automotive M&A activity for 2013 and beyond continues to be constrained by the signifcant challenges in the global macro-economic environment. However, PwC observes signs of growth on the horizon. Key factors contributing to potential growth are high levels of liquidity, strategic initiatives to expand business and technology capabilities, resolution the Europe Union sovereign debt crisis, strong economic recovery and resumption of economic growth trends in China and India. This latest edition of the Automotive M&A Insights: Driving Value is only an introduction of our insight and observations about the automotive industry. Our clients in the automotive and nancial sectors frequently seek our advice on potential transactions and the strategies underpinning deals. Your feedback is important to us. We welcome the opportunity to provide you with more information about any of the topics that require further information.Paul G. Elie U.S. Automotive Transaction Services Leader +1 (313) 394 3517 firstname.lastname@example.org
3. Overview: Recovery and growth tempered by regional challenges in EuropeThe growth in automotive M&A activity witnessed during the rst half of 2011 has given way to the macroeconomic pressures resulting in subdued M&A activity in 2012. Overall automotive deal volume fell by 18% while deal value declined by 33% compared to 2011. Not only did the industry experience reduced levels of deal activity but also witnessed a decline in the average deal size, which speaks to a more conservative risk appetite among buyers. While some regions show signs of continued stabilization and protability after the recession of 20082009, lingering economic struggles in Europe, historically the most active region in M&A activity, are taking a toll on the global automotive deal market. Europes share of global deal volumes is down for the second straight year while Asia continues to grow its presence becoming the largest acquirer region in 2012.Since 2009 strategic buyers have accounted for an increasing share of deal volume in the automotive space compared to nancial buyers. Strategic buyers are better positioned to extract synergies from acquisitions and currently also have the nancial resources to execute deals. As they vie for global leadership, M&A will continue to be an important tool for growth. As the marketplace continues to stabilize, we expect to see an increasing number of strategic buyers executing on inorganic growth strategies. Over the past couple of years, PwC has maintained its positive outlook for automotive M&A. This has primarily been driven by underlying growth expectations for global automotive sales and assembly. The automotive sector is expected to add nearly 30 million units globally between 2012 and 2019. Given technological changes as well as industry fragmentation, M&A activity will continue to be an important option. However, the economic climate has impacted deal activity to a higher degree than initially expected. Hence while PwC remains optimistic on the outlook for automotive M&A, the timing for an increase remains uncertain and clouded with Europes crisis and its impact on the global automotive sector.2012 Automotive Insights1
4. Cross-Sector M&A Global cross-sector M&A activity fared much better than the automotive sector in 2012 with deal volumes declining by 7% and deal value declining by 17% compared to 2011. Global cross-sector M&A deal volume and value 20002012 4.545 38.53.54037.2 33.832.632.5 30.529.93.03531.4 29.326.725.8 23.92.530 2522.12.0201.5151.0Deal volume (thousands)Disclosed deal value ($trillion)4.0100.505 $2.21$1.37$1.24$1.62$2.31$3.05$4.07$2.90$1.84$1.96$2.35$1.9520000.0$3.72200120022003200420052006200720082009201020112012594604Disclosed deal value0Deal volume (R-Axis)Source: Thomson Reuters and other publicly available sources.Global automotive M&A deal volume and value 20002012 140700Disclosed deal value ($billion)120588580584594600$6 520515 5491004905325004628040060300 $704020020100 $48$19$35$21$26$41$49$57$32$46$25$45$3020000200120022003200420052006200720082009201020112012Disclosed deal valueUST Facilitated InvestmentsSource: Thomson Reuters and other publicly available sources. 2 PwCSovereign wealth investmentsDeal volume (R-Axis)0Deal volume621
5. 2012 Perspective: Automotive M&AAfter a sharp spike during the rst half of 2011, deal volumes and deal values have slowed in 2012. Europes debt crisis continues to weigh heavily on the European auto sector, which in prior years has been the most active participant in global automotive M&A. The sector transacted 490 deals with a total disclosed value of $30.2 billion. This represents an 18% and 33% decline in deal volume and value when compared to 2011, where a total of 594 deals were completed for a disclosed value of $44.9 billion. The automotive space transacted 98 deals during Q4 2012, marking the third straight quarter of decreasing deal volume.Overall there is increased conservatism given the looming economic challenges in the European Union (EU) and uncertainty in the regulatory environment. Automotive deal value and volumes were at lower levels during 2012 than those witnessed during the recession of 20082009. This gives light to the fact that uncertainty is hurting the deal space more than the recession itself. As soon as the macroeconomic environment improves, we likely will see a wave of pent-up demand resulting in increased deal activity.Other factors in the overall decline of M&A activity included the uncertainty of the outcome of the presidential election, the scal cliff scenario in the United States (US), and the slowdown in economic growth and transition of power in China.Global automotive M&A deal volume and value by quarter Q1 2008Q4 2012 2502520016115139143150148141140126151 139135 125109150 116109981131101013750100Deal volumeDisclosed deal value ($billion)1952050$5.78 $10.27 $10.1Q1 2008$5.51$19.8Q4 2008Disclosed deal value$1.83 $11.85 $18.2Q3 2009$6.99$4.81Q2 2010$7.28$5.77$8.44 $12.35 $8.17Q1 2011$15.9$7.56Q4 2011$2.57 $10.85 $9.260Q3 2012Deal volume (R-Axis)Sources: Thomson Reuters and other publicly available sources. 2012 Automotive Insights3
6. Smaller dealsGlobal automotive M&A deals by disclosed value 20072012 400 350250712 7 200$283 6 631 1503003813 13$234250582435 $186100$161$149200 150$140 10050 50 194 01751351471761472007200820092010201120121 billionAverage deal size (R-Axis)Sources: Thomson Reuters and other publicly available sources.4 PwC0Average disclosed deal value ($billion)Deal volume of disclosed deal value300Small and mid-size deals dominated the global automotive M&A landscape. The six mega-deals (>$1 billion) transacted in 2012 was consistent with the last few years. The low level of mega deals being transacted relative to pre-recessionary automotive volumes is indicative of both the risk appetite of acquirers as well as the focus of the strategic buyers on achieving concentration of scale and expertise in the specic product/sectors in which they compete.
7. Regional analysisEuropeNorth AmericaHistorically, Europe has been the most active region in automotive M&A in terms of both acquirers as well as targets. However the current economic crisis and ensuing austerity measures have signicantly impacted the automotive industry with new car demand in the EU and European Free Trade Association (EU+EFTA) declining by 7.8% to 12.5 million units in 2012. This represented the fth consecutive annual decline in the region, with new car sales stalling at 3.5 million units below its 2007 peak. These challenges diminished the appetite and resources among European strategic buyers. These challenges also have heightened the risks around European assets and exposure to the region.Unlike Europe, North America underwent restructuring during the 20082009 recession, and is now attracting more investments. North American operations also are churning out signicant prots, providing strategic buyers with the nancial resources to execute M&A strategies.As a result, Europes share of M&A activity declined for the second straight period both as an acquiror region as well as a target region. Asia and US, on the other hand, saw their share of M&A activity increase.Asia was the most active acquiror region with more than one third of the global automotive M&A volume during 2012. This is in line with the regions uptick in share of acquiror deal volume over the last three periods. A long time second place acquiror behind Europe, as of 2012, Asia took the lead as the global leader in acquisitions.Contrary to volume trends, Europe accounted for the largest acquiror region in terms of value with a 43% share in 2012, marking the third straight period of increasing share value. Three of the top ve deals by disclosed value were transacted by European acquirers of which two were intra-regional deals. The current operating environment in Europe may translate into favorable valua