The European Automotive sector is accelerating away from its North American rivals, according to research by the corporate finance team at Houlihan Lokey. It is not only Europe’s car manufacturers who are winning the race, the top 20 European supplier groups are also shifting up a gear, making more acquisitions and significantly fewer divestitures.
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In 2007, light vehicle assembly in the European Union, at over 18.8m units, was around 25% ahead of the comparable output in North America and industry forecasts predict that the gap will continue to widen and that in 2010 European output will be around 35% ahead of North America.
Annual automotive revenue reported by Europe’s top 20 suppliers, at nearly €149bn, is currently around 16% ahead of the top 20 North American groups, according to Houlihan Lokey. The leading European groups are bulking up their position via acquisitions, not just in their home markets but around the world. North America’s top 20 automotive players have sold more than they have bought over the last three years and have seen their cumulative revenue decline marginally as a result. The top 20 European suppliers have added over €15bn to their revenue via acquisitions. The most acquisitive group in Europe has been Continental, completing eight acquisitions in the last three years, the most significant of which was Siemens VDO, which had annual revenues of just over €10bn. Interestingly, US group TRW Automotive was a serious bidder for Siemens VDO and if it had won the auction the table would have looked rather different. Major US groups which have been downsizing include Arvin Meritor, Dana, Delphi and Hayes Lemmerz, each of which has sold at least six businesses over the last three years. A number of North American groups have bucked the trend, with Cooper Standard, IAC, Johnson Controls and Magna each making at least 3 acquisitions over the last three years.
The biggest headache for the North American groups has been coping with production cuts implemented by the Big Three. This has forced many US groups into dramatic restructuring. German groups, which account for ten of the top 20 European suppliers, have been very active consolidators, benefiting from the strength of their core German customers.
Over the next few years, Houlihan Lokey expects that the North American suppliers will continue to restructure their portfolios and European suppliers will continue to move ahead of their rivals. With the majority of Germany’s major players being privately held, either by families or foundation structures, they can arguably play a longer game than their publicly held rivals. In North America, institutional shareholders are applying pressure for the major suppliers to deliver adequate returns and in many cases this will force the sale of further assets. Scale is clearly not seen as a panacea.
European and North American Auto Suppliers – Top 20 Comparison: Scale, Acquisitions and Divestitures in last three years (June 05-June 08)
Cumulative Annual Auto Revenue (€bn) | Acquisitions (total number) | Cumulative Revenue Acquired (€bn) | Disposals (total number) | Cumulative Revenue Divested (€bn) | |
|---|---|---|---|---|---|
European Groups | 148.6 | 39 | 15.5 | 18 | 3.2 |
North American Groups | 128.5 | 28 | 4.7 | 55 | 9.7 |
Source; Houlihan Lokey, Capital IQ and MergerMarket
