Over the last few years one of the major mechanisms for the restructuring of the component sector has been mergers and acquisitions, but the current slowdown in the major markets around the world has slowed the pace of deals in the automotive component sector. In the component sector the total disclosed deal value fell by around 30% in 2000 (from $37.0bn in 1999 to $25.8bn), but the number of transactions identified only fell by 4% (from 284 to 272) according to the PwC Global Supplier Report produced by just-auto.com/AutoBusiness.

There are two explanations for the steep decline in total value disclosed. The first is that there were fewer mega deals and the second is that valuation multiples have declined dramatically, as the economic outlook has weakened and stock-market values have slumped. The focus of quoted companies has shifted from expansion to restructuring of existing businesses.

Examining only the deals where value was disclosed, the number actually fell by around 20% (from 126 to 101). This means that the average size of deal in the component sector was around $255m (down 13% from $294m in 1999).

The combined value of the top ten deals closed in this sector rose slightly in 2000 compared to 1999 ($20.3bn compared to $19bn). However, the 2000 figures benefited from the impact of the $9.2bn acquisition of Mannesmann Atecs by a joint venture consortium involving Bosch and Siemens. This move followed the hostile acquisition of Mannesmann by Vodafone and the subsequent break-up of the group.

Top 10 component supplier transactions closed Jan 2000 - Apr 2001

Target
Target Nat.
Buyer
Buyer Nat.
Deal Value ($m)
% Acquired
Atecs Mannesmann
Ger
Siemens/Bosch JV
Ger
9240
100
TI Group
UK
Smiths Industries
UK
2700
100
Mark IV
US
BC Partners
UK
2175
100
MascoTech
US
Heartland Private Equity
US
2200
100
Sumitomo Rubber
Jpn
Goodyear
US
936
10
TRW Lucas Diesel
UK
Delphi
US
871
100
Arvin Industries
US
Meritor
US
589
100
BBA - Friction Material
UK
HSBC Private Equity
UK
584
100
Detroit Diesel
US
DaimlerChrysler
Ger
581
79
Mando Machinery -Auto
Kor
Chase & UBS Private Equity
US/CH
446
100

In the first quarter of 2001, the disclosed value of completed deals involving the automotive components sector fell from $2.1bn to $1.1bn - a 48% decline. However the decline in the number of transactions closed in the components sector was a slightly less severe 36% with 51 versus 80 transactions reported closed. Comparing quarters and reading too much into the trends can be dangerous, however, there can be little argument that both deal volumes and values have continued to decline. A number of relatively large component supplier deals have been announced but not completed the largest of which is the Peugeot / Faurecia acquisition of Sommer Allibert's auto businesses - a deal worth around $1.24bn. Continental has announced its intention to acquire Temic - DaimlerChrysler's electronic activities - in a $336m deal and ThyssenKrupp is attempting to consummate a $255m acquisition of Fiat subsidiary Magneti Marelli's suspension activities. As a result, it would be fair to say that M&A activity continues, albeit at a slightly less frenetic pace than experienced over the past couple of years.

Key trends in the leading transactions in the component supplier sector were the emergence of Europeans to rival US buyers, the increase in deals in the Far East (particularly Japan) and the emergence of Private Equity or Venture Capital providers becoming key players in the sector.

In 2000, more than 40 venture capital backed deals were recorded across all sectors of the automotive industry with an aggregate value of around $7.5bn. This compares to around $4bn in 1999. Around $6bn worth of venture capital backed transactions were in the components sector accounting for close to a quarter of the total deal value disclosed in the sector. Not surprisingly, many sellers are now actively pursuing venture capital groups as the first port of call when divestitures are considered. The scale of the move is underlined by the fact that in 2000, there were fourteen acquisitions, backed by venture capital groups, which had transaction values of $100m or more.

Private equity groups such as BC Partners, Carlyle, Chase, Cinven, CVC, Doughty Hanson, Heartland, HSBC, Schroder and UBS have all been active participants in the sector's M&A activity. The reason is simple, valuation multiples have declined to levels which draw their interest and the prospect of building a global group via acquisitons with real strength in a defined product area is today distinctly possible. This stems from the fact that many trade buyers are struggling to digest acquisitions consummated over the last couple of years. Some players are refining their automotive portfolios or exiting the sector altogether. Others are at the limit of their debt capabilities and would struggle to get funding support from their public shareholders. Many groups listed on the stockmarket have suffered from investor apathy and a few have taken this as an opportunity to seek funding from venture capital groups to take their businesses private.

Heartland was the highest profile venture capital player in the automotive components sector over the last 12 months with acquisitions of Mascotech, Simpson and GMTI in the metal components sector and Collins & Aikman and Becker in the trim sector. Their strategy is to "buy, build and grow" and further deals are expected as the group searches for undervalued industrial companies.

Venture capital backed acquisitions closed Jan 2000 - Apr 2001 (>$100m value)

Date Target
Target Nat.
Buyer
Buyer Nat.
Deal Value ($m)
Jan-01 Global Metal Tech. Inc. (casting)
US
Heartland
US
>100
Feb-01 Collins & Aikman (interior trim)
US
Heartland
US
>100
Mar-01 Becker Group LLC (plastic trim)
US
Heartland
US
141
Dec-00 Simpson Industries (Chassis div.)
US
Heartland
US
350
Dec-00 Varta (batteries and plastics)
Ger
DB Investor
Ger
249
Nov-00 MascoTech (engine components)
US
Heartland
US
935
Nov-00 Yuasa Inc. (batteries)
US
Morgan Stanley
US
169
Sep-00 General Trailer (HGV trailers)
Fra
Apax
Fra
>100
Sep-00 Mark IV Industries (engines, transmissions, hose etc)
US
BC Partner
UK
2175
Aug-00 Kiekert (lock systems)
Ger
Schroder Ventures
Ger
381
Aug-00 BBA Group (friction material div.)
UK
HSBC
UK
584
Jul-00 Cambridge Industries (plastic components)
US
Meridian / Windward Capital
US
363
Jul-00 Holm ~Industries (plastic sealing and tubing)
US
Madison Capital Partners
US
100
Apr-00 Fiat Lubriant (lubricants)
Itl
Doughty Hanson
UK
354
Jan-00 Mando Machinery (brakes etc)
Kor
Chase & UBS Capital Partners
US/CH
446
Jan-00 Invensys (sealing systems)
UK
CVC Capital Partners
UK
400
Jan-00 Tritech Precision (castings)
Cdn
The Carlyle Group
US
104

Looking at the geographical trends within automotive M&A, while total M&A volume fell sharply in North America and Europe one feature of 2000 was the buoyancy of the market in Asia. Although deal value disclosed fell by 10% (from $9.1bn to $8.2bn), the number of transactions identified involving Asia targets doubled (from 37 to 75). Not surprisingly, Japan was the most important target market in Asia accounting for 44 transactions.

Annual disclosed M&A transaction value by target's region

Looking at the component sector, global players such as Johnson Controls, GKN, Goodyear, Michelin, Tower, Visteon and Valeo all took advantage of the opportunity to expand their presence in Japan to satisfy increasingly global vehicle manufacturers with supply capabilities in this important region. One characteristic of many deals in Japan continues to be the preponderance of minority participations - such as Valeo/Ichikoh and Tower Automotive/Yorozu - rather than outright purchases.

PwC expect that the number of mid-size automotive M&A transactions will continue to increase in Asia. Japanese suppliers are also looking towards Europe to supply the developing presence of the Japanese OEMs and as a result we expect there to be an increase in the number of acquisitions made by these groups in Europe. PwC also expect to see venture capital backed buyouts increase, such as 3i's funding of the acquisition of Nissan's logistics company, as aggressive Western private equity players push into the region.

The PwC Global Supplier Report profiles 320 of the leading first, second and third tier suppliers in the automotive sector, and also outlines the major suppliers to car makers in exterior, chassis/underbody, powertrain, interior and electrical/electronic areas.


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PriceWaterhouseCoopers Global Supplier Report