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Automotive transactions and trends 1H16Global automotive mergers and acquisitions review
Produced by Global Markets — EY Knowledge
ContentsExecutive summary 01
03
04
06
07
11
12
Mark ShortEY Global Automotive and Transportation Industry Leader, Transaction Advisory Services
Analysis by deal sizes
Cross-border deals in 1H16
Transaction drivers for the automotive value chain
Automotive sub-sector transaction trends and drivers
Capital and M&A outlook
EY’s Capital Agenda considerations for key stakeholders
Digital disruption and innovation are driving the automotive M&A environment
The automotive sector has accepted the reality of an extended low-growth global economic environment, with modest or stable growth expectations.
Despite strong deal fundamentals and a healthy deal environment, automotive transactions slowed during 1H16, likely attributed to the Brexit, the US presidential election and moderating growth in China, among other drivers. Low interest rates, high levels of corporate cash and access to financing continue, however. If current economic worries prove to be short-lived, we could see transactions, particularly in the mid-market, pick up toward the end of the year.
Digital disruption and the blurring of sector lines have automotive companies planning for multiple possible futures. M&A plays a critical role within these scenarios, as an important, transformative option for expanding on the core products and services of today, and accelerating emerging businesses of tomorrow.
Automotive companies that successfully balance their M&A plans with strategic and innovative corporate initiatives will be well positioned to win in the evolving marketplace.
1Automotive transactions and trends 1H16 |
Executive summary
Sub-sector insights Regional insights
Share of component suppliers in the deal values in 1H16
42%y-o-y increase in retail deal values
~50%
The average deal size stood at US$138 million in 1H16
Source: Dealogic
y-o-y decline in deal values (US$27.6 billion)
19% 6%y-o-y decline in deal volumes (426 deals)
76%Share of deals with values up to US$100m
While deal fundamentals were supportive of a healthy transactions market, automotive deal activity slowed during 1H16. Automotive companies maintained a cautious dealmaking approach, focusing on synergy savings generation and expansion of geographic footprint.
Top target nations (volume)
Top acquiring nations (volume)
20%China
UK
US
16%
10%
20%China
UK
US
17%
9%
2 | Automotive transactions and trends 1H16
With economic sentiment broadly supporting transactions, automotive companies’ appetite for M&A remained strong, despite decreased deal volumes.
Overall completion rate for deals announced in last nine quarters
91%
Average deals closed in the announced quarter, during 2Q14 to 2Q16
79%
Deal completion scenario* in the last two years
Continued confidence in the M&A market**
*Based on deal volumes.** Insights from the latest Capital Confidence Barometer.Source: Dealogic and Capital Confidence Barometer
of automotive executives expect to pursue acquisitions in the next 12 months
52%of automotive executives have a positive level of confidence with regards to the number of acquisition opportunities
57%of automotive executives expect the M&A market to improve in next 12 months, while an additional 49% expect a stable M&A market
49%
99.6% 99.2% 97.6% 97.8% 96.9%90.5%
75.2%84.8%
73.8%81.1%
86.7% 83.0% 82.1%77.2% 80.6%
72.8% 77.0%70.5%
2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Deals completed in the same quarter (%)Deals completed (%)
Executive summary
Low- to middle-market transactions, those valued up to US$250 million, continue to dominate the automotive M&A space.
Deal volumes split by deal size, 1Q13–2Q16
•
82% 86% 87% 83% 79%89%
80%87%
75%82%
76% 77% 75% 77%
8%7% 9%
9%2%
7%5%
10%8% 15% 12% 16% 8%
10% 7% 4% 9% 13% 9% 12% 8%14% 10% 9% 11% 9%
15%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Transaction values in US$ million>250101–250<= 100
• Gain market share in existing geographical markets
• Reduce costs and improve margins
• Access new technologies and intellectual property
• Move into new geographical markets
8%
2Q131Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Deal drivers
*Calculation based on deals with disclosed values.Source: Dealogic
Analysis by deal sizes
3Automotive transactions and trends 1H16 |
4 | Automotive transactions and trends 1H16
Cross-border deals in 1H16Companies continue to focus their M&A activity around a core group of developed and top-tier emerging countries.
Domestic deals Outbound deals Inbound deals
Japan(30)
China(83)
SouthKorea(14)
UK(44)
4 deals
1 deal
1 deal
3 deals
2 deals1 deal
1 deal2 deals
Germany(32)
US(106)
18%
19%63%
21%
24%55%
3%
21%
76%18%
12%
70%
7%
16%
77%
7%7%
86%
*The number in brackets represent total numbers of deals in that country/region.Source: Dealogic
Where a company operates is as important as the segments in which it operates. Enterprises that undertake a robust portfolio review often move toward geographies that fill gaps or are ripe for disruption.
5Automotive transactions and trends 1H16 |
Cross-border deals formed a significant share of high-value deals, driven by the improving investment climate.
*The size of the circle and the number represents deal volumes for deals with disclosed values.Source: Dealogic
Domestic Cross-borderDeal type
Dea
l val
ues
(in U
S$ m
illio
n)<1
0010
0–25
0>2
50 619
33
15 15
116
Key drivers for cross-border deals
Growing domestic demand for global products in emerging markets
Gradual easing of FDI and related regulatoryprocesses
Leverage cost base/economies of scale
Access strategic proprietary assets and low labor cost
Cross-border deals in 1H16
With global growth moderating and uneven, cross-border M&A strategies are driven by companies seeking pockets of growth abroad.Steady cross-border acquisition activities highlight the increasing interconnectedness within the global economy.
6 | Automotive transactions and trends 1H16
• Restructuring of underperforming operations
• Optimizing costs and achieving operational efficiencies
• Accessing emergent technologies and innovation, such as self-driving cars and light-weighting
• Re-engineering operations and infrastructure, and making selective growth investments
• Securing private equity/activist investments for business expansion/restructuring
• Increasing investors’ confidence in tech-based mobility providers driven by the new collaboration economy
• Establishing distribution network in domestic markets
• Enhancing core business model and services
• Enabling integrated service offerings
• Geographic diversification to manage regional demand volatility
• Expanding or rationalizing product portfolio to maximize return on capital
• Access to new customer segments, products and industrial solutions
Key M&Adrivers in
1H16
Fleet and rental
Retail an
d
afterm
arke
tSuppliers
Vehic
lem
anuf
acturers
Transaction drivers for the automotive value chain
7Automotive transactions and trends 1H16 |
969
14,868
6741,654
3071,491
3,901 1,903 2,2696,010
3,191
17
35
21 18
2621 21
2732
23
15
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Deal value (US$m) No. of deals
Innovation in theautomotive sector
is pushing M&A into ahigher gear. During 1H16,
deals were driven by business integrations aimed at capacity improvement,
networks in emerging markets and technology
advancement.
Deal values increased by 70% y-o-y to
US$9.2 billion
Deal volumesdecline by 9.5% y-o-y
Japan and China were the largest
acquirer countries with a combined 93% share in deal values
Fleet and rental
Retail an
d
afterm
arke
tSuppliers
Vehic
le
man
ufac
turers
Key M&Adrivers in
1H16
Source: Dealogic*The Porsche-Scania deal contributed more than 60% to the total deal value during 1Q14.
Vehicle manufacturers transactions
M&Astrategyoutlook
Operational restructuring tounlock capital for expansion
Access to autonomous driving
and connectivity technologies, and
future mobility solutions/services
Improving efficiency with complete integration of subsidiary
businesses
Deal indicatorsShare of the top five deals in 1H16 in total deal values
84% Completion rate of deals announced in 1H16 based on deal volumes
57% China and US deal volume share in total deals
50%
8 | Automotive transactions and trends 1H16
China, the US and Japan emerged as the largest acquirer countries with 64% share in deal values
Deal values declined by 45% y-o-y to US$11.4 billion, while deal volumes declined by more than 17% y-o-y
China, the US and Germany were the largest target nations, accounting for more than 60% share in deal values
Parts and equipment (supplier) transactions
1H16 deals were driven by portfolio rationalization and expansion
Fleet and rental
Retail an
d
afterm
arke
tSuppliers
Vehic
le
man
ufac
turers
Key M&Adrivers in
1H16
4,609
7,7718,917
16,600
1,606
15,255
5,6956,976
5,182
7,158
4,319
84
112
89
111100 100
111
8882
94
80
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Deal value (US$m) No. of deals
Source: Dealogic
M&Astrategyoutlook
Continued portfolio
rationalization and expansion
Scaling-up of global presence,
monetization of non-strategic business
divisions
Gaining access to new safety
and electronics technologies
Deal indicatorsShare of the top five deals in 1H16 in total deal values
47% Completion rate of deals announced in 1H16 based on deal volumes
75% Completion rate of deals announced in 2Q16 based on deal volumes
69%
9Automotive transactions and trends 1H16 |
1,623 1,102 848 933
18,109
2,171798 1,109
2,9981,747
2,707
68 68 71
8680
65 62
77
60
86
57
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Deal value (US$m) No. of deals
Fleet and rental
Retail an
d
afterm
arke
tSuppliers
Vehic
le
man
ufac
turers
Key M&Adrivers in
1H16
For 1H16China was thelargest target
nation, accounting for nearly 56%share of deal
values
China, the USand France
emerged as the largest acquirer
nations with a share of 82% in
deal values
Deal valuesincreased by 50%
y-o-y in 1H16, indicating rising level of mega deals being transacted; volumes
declinedby 17% y-o-y
1H16 dealswere driven by
enabling integrated service offering and
expansion of network
Source: Dealogic
M&Astrategyoutlook
Enabling integrated
service offerings
Expansion of distribution
networks
Expand presence in new geographies or related
business lines
Retail and aftermarket transactions
Deal indicatorsShare of the top five deals in 1H16 in total deal values
78% Completion rate of deals announced in 1H16 based on deal volumes
90% Completion rate of deals announced in 2Q16 based on deal volumes
84%
10 | Automotive transactions and trends 1H16
348 1,071 294 709
61,523
4,275456 2,276 2,324 2,275 243
3728
43
3038 41
27 27 25
3728
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16
Deal value (US$m) No. of deals
Fleet and rental
Retail an
d
afterm
arke
tSuppliers
Vehic
le
man
ufac
turers
Key M&Adrivers in
1H16
1H16 deal activity focused on operational improvement and business expansion, as well as growing confidence in the business model of tech-based mobility companies.
Deal values declined by 46%,
whereas deal volumes declined
by 4% y-o-y, indicating a steep fall in the average
deal values
China, France and Hong Kong were the largest acquirer nations, contributing 73%
share by deal value
China, France and the US were
the largest target nations,
contributing 72% share by deal
value
Source: Dealogic
M&Astrategyoutlook
Enabling integrated mobility
products and services
Product and services portfolio
expansion for urban and business
customers
PE investments for geographic expansion and
improving operational efficiency
Fleet and rental transactions
Deal indicatorsShare of the top five deals in 1H16 in total deal values
83% Completion rate of deals announced in 1H16 based on deal volumes
79% Completion rate of deals announced in 2Q16 based on deal volumes
75%
11Automotive transactions and trends 1H16 |
Capital and M&A outlookInsights from the Automotive Capital Confidence Barometer
Digital and innovation drive M&A market
Technology, digitaland changing customer
preferences fuel cross-sector M&A
Global economic confidence challenged
by regional political instabilities
M&A strategy focused on cross-border
acquisitions
Growth strategies focus on risk
management and digital technologies and
analytics
Respondents view the economy as either stable or modestly improving
86%
33%
Respondents cited access to new materials or technologies/digitalization as drivers for acquisition outside of automotive sector �
31%
Respondents cited changing customer behavior as a driver for acquisition outside of automotive sector
Respondents cited geopolitical instability as the greatestbusiness risk
28%
Respondents planningacquisitions outsidetheir immediate region
76%
Respondents planningdomestic acquisitions in the next 12 months
24%
Respondents focused on improving risk management to drive growth over next 12 months
53%
Respondents planning to make better use of digital technologies and analytics as growth drivers
48%
1 2 3 4
Note: Automotive Capital Confidence Barometer was a survey of 112 senior automotive executives from large companies around the world.
12 | Automotive transactions and trends 1H16
The CapitalAgenda
Raisin
g Investing
Preserving Optimizi
ng
What is the best way for your company to grow and is it aligned to core business?
How can you improve the performance of your assets?
What steps can you take to maximize your portfolio’s performance?
• Assess investment opportunities and risks associated with new segments and business models
• Use need-based and strategic alliances, JVs and acquisition to gain technology and geographic coverage
• Build flexibility in emerging market investments
Do you have the right capital structure to meet your strategic priorities?
• Improve information flows to support enhanced visibility of liquidity and cash risks
• Enhance business modeling and cash forecasting systems and capabilities
• Maintain a dynamic business and product portfolio assessment process to support liquidity needs
• Evaluate effectiveness of currency and raw material hedging strategies
EY’s Capital Agenda — key considerations and implications
• Integrate government incentives, direct loans and guarantees in capital-raising strategies
• Refinance debt, equity and other obligations
• Execute “loan-to-own strategies” providing opportunities to raise capital
• Balance cost reduction with sustainable process change
• Institutionalize and integrate working capital initiatives
• Divest carefully — implement risk management process around divesture cycle to maximize cash benefits
• Benchmark leading-class performance and pursue targeted change
For a conversation about your capital strategy, please contact us:
Acknowledgements
Special thanks to EY Knowledge automotive analysts Joe Sebestyen and Sudarshan Vyas for the analysis and compilation of this study.
Randall Miller Global Automotive and Transportation Industry Leader +1 313 628 8642 [email protected]
Mark Short Global Automotive and Transportation Industry Leader, Transaction Advisory Services +1 313 628 8760 [email protected]
Jim Carter Americas Automotive and Transportation Industry Leader, Transaction Advisory Services +1 313 628 8690 [email protected]
Constantin Gall GSA Automotive and Transportation Leader, Transaction Advisory Services +49 (711) 988114878 [email protected]
Tony Tsang Far East and Oceania Automotive Industry Leader, Transaction Advisory Services +86 21 2228 2358 [email protected]
Peter Wesp Japan Automotive Leader, Transaction Advisory Services +49 6196 996 27282 [email protected]
Anil Valsan Global Automotive and Transportation Lead Analyst +44 20 7951 6879 [email protected]
Regan Grant Global Automotive and Transportation Marketing Leader +1 313 628 8974 [email protected]
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