Despite the acknowledged doom and gloom in the sector globally, particularly in the vehicle manufacture arena, automotive M&A activity remains brisk, with 419 transactions identified by PricewaterhouseCoopers in the sector over the first nine months of 2003.
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Compared to the same period last year, the number of transaction is down by 73 (15%), but total disclosed value of deals in the same time has risen by 31% to reach $14.8bn. This increase is due to the $4.7bn Blackstone acquisition of TRW Automotive, which on its own accounted for over 30% of the total value. Without this transaction disclosed deal value would have declined by 11%.
The top 20 deals in the sector accounted for over 80% of the total disclosed deal value. While 56% of the transactions have no disclosed deal value, the majority of these are relatively small and unlikely to make a dramatic difference to the deal value total.
Private equity houses have accounted for over 65% of the deal value in the period. Private funds backed 12 of the top 20 deals in the sector, with Blackstone, Carlyle, Castle Harlan, Heartland and Hg Capital the primary players over the period. North American private equity groups led the field, with investments worth more than $6bn in the sector over the first nine months of 2003.
According to Philip Wylie, who heads the Automotive team at PricewaterhouseCoopers Corporate Finance: “Private equity funds are taking advantage of the relatively low multiples in the sector. Many deals are being done at around 4.6xEBITDA*, picking up groups with strong strategic positions and healthy underlying cash flow. As long as the general stock market multiples remain low, the interest of the private equity players is likely to continue to be brisk.”
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By GlobalDataThe focus of private equity houses is almost exclusively on the component sector. Component suppliers accounted for over 40% of deals and for almost 70% of the disclosed total value.
PricewaterhouseCoopers believes automotive supplier consolidation will continue increasing over the next three years. This was also the unanimous conclusion of the CEO’s of six North American supplier groups, who were asked the question at a recent Automotive M&A conference sponsored by PricewaterhouseCoopers in Detroit. The Tier 1 supplier base could feasibly fall to just 25 major players (from 600-800 in 2000), in the longer term, while the Tier 2 supplier base could more than halve.
The retail and aftermarket sectors accounted for almost 40% of transaction volume but only for 14% of total disclosed deal value as these transactions where in general relatively small in value terms.
Philip Wylie commented: “In Europe, we expect the rate of consolidation amongst dealers to pick-up following changes in legislation surrounding the control vehicle manufacturers can exert on their franchised dealers. However, this consolidation will continue to be dominated by local rather than significant cross-border transactions – economies of scale are relatively insignificant whereas cross-border management and marketing issues are significant.”
Geographically, transaction volume continues to be dominated by Europe (49%), North America (27%) and Asia (21%). (Fig 4, Deal Tables). However, the value of European transactions has dropped from 61% of the total disclosed value in 2002 to just 14% in 2003.
Philip Wylie said: “This drop in the value of European deals reflects the lack of very large deals in the market over the period rather than any underlying resistance to the push for consolidation. In Europe, 2002 was marked by six large transactions, which accounted for over $5bn or 75% of disclosed value, whereas 2003 has seen only two deals with a value over $300m.”
*Earnings Before Interest Tax Depreciation and Amortisation
