Growing confidence in the global economy and a relentless push for innovation will further support mergers and acquisitions (M&A) in the automotive sector in the next 12 months, according to EY’s Automotive Global Capital Confidence Barometer.
The biannual survey gauges the corporate confidence and acquisition intentions of global executives and reveals that automotive companies’ appetite for M&A is at an all-time high, with 70% of executives expecting to pursue acquisitions in the next 12 months – highest since the survey began in 2009.
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The growing importance of product innovation and access to emerging technologies, such as driverless cars and advanced materials, are motivating factors behind a significant number of deals within the automotive sector, EY says.
Deals under US$250m continue to dominate executives’ plans. However, since the last Barometer in October 2014, the most significant growth has been in upper-middle-market deals, those between US$250m and US$1b in size. This category has increased by nearly 50%.
Mark Short, EY’s Global Automotive and Transportation Industry Leader, Transaction Advisory Services, says: “Anticipation of transactions has never been higher in the automotive sector. Acquisitive appetite has increased with cash-rich balance sheets, combined with easier access to debt financing opportunities. The majority of acquisitive companies are now focusing on M&A to strengthen their core business, with an eye to boosting market share, managing costs and improving margin growth. The need for new market strategies coupled with increasing the mix of new products and services are key criteria for selecting the most suitable partners for business sustainability.”
However, ongoing geopolitical issues – from Eastern Europe to the Middle East and cyber attacks – are a growing risk to rebounding M&A market. Half (50%) of the respondents are proactively guarding against cyber breaches in their M&A processes.
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By GlobalDataThe vast majority (83%) of automotive executives now see the global economy as improving – up strongly from a year ago (58%). Unlike in 2014, there is broad-based confidence across all geographies, with multiple engines powering the global economy. While significant downside risks remain (geopolitical uncertainty, fall in commodity prices and volatility in currencies), executives are increasingly focused on capturing the potential upsides of global economic growth.
“An overwhelmingly positive outlook for the global economy and a continued robust outlook for corporate earnings and other leading market indicators, including credit availability, should combine to support a healthy M&A environment over the next 12 months,” says Short
Some 74% of automotive respondents also expressed confidence in access to credit, a big jump from 48% a year ago, EY said.
For automotive OEMs and Tier 1 suppliers, interest in M&A seems to have accelerated recently. FCA boss Sergio Marchionne has said that more consolidation is needed among automakers to raise efficiency. In the supplier sector, too, future industrial consolidation is a hot topic. Besides the recent completion of ZF’s takeover of TRW, Delphi’s boss recently said that the company is ready to make a major acquisition this year.
