Worldwide supplier mergers and acquisitions fell last year, according to a survey by PricewaterhouseCoopers.

But Pwc‘s Corporate Finance team says M&A deal value actually increased when TRW-related transactions aren’t counted and that activity among medium sized suppliers is on the upswing.

The value of deals in the components sector was down 21.1% in 2003 compared to the year before, says PwC.

Companies with combined sales of $US12.8 billion changed hands in 2003, down from $16.3 billion in 2002.

Still, suppliers were the most active sector in the automotive business – more than retailers or OEMs. They accounted for 45% of all automotive deals recorded and 63% of the value of the deals.

Deal value actually increased between 2002 and 2003 when transactions involving TRW are excluded. TRW-related transactions totalled $11.7 billion in 2002 and $4.7 billion in 2003.

PwC cited strong growth in activity among medium sized companies.

“Tier 2 suppliers are under increasing price pressure from both their Tier 1 customers and the vehicle manufacturers,” says the consulting firm.

That is driving consolidation at the Tier 2 level, PwC analysts say.

Distressed situations

The survey cited a number of “distressed situations” among component companies, including Kendrion, a Dutch firm which owns a German automotive plastics operation; Mayflower, a quoted UK group with pressing activities in Europe and North America; and Peguform, the former cockpit and bumper subsidiary of Venture, now in the hands of the receivers.

There are a reasonable number of assets for sale, says Tony Gilbey, head of Deutsche Bank’s European Automotive Group.

“I think it is a question of how attractive they really are to people and whether there is someone willing to consolidate in certain areas or not.”

Supplier efforts to ‘internationalise’ to follow customers and bolster core competences are another M&A driver in 2004.

The steady stream of investment in China is expected to continue. Some major international supplier groups have yet to make the move and companies already in China are looking to add more joint ventures or acquire a larger stake in local partners.

Chinese, Indian suppliers seek opportunities

Companies from emerging markets such as India and China are trying to gain a foothold in western markets. They want to get closer to decision makers and acquire competitive technologies.

Bharat Forge acquired leading German forging company Carl Dan Peddinghaus in November 2003, creating a global market leader in the sector.

Another Indian-owned supplier, Sundaram Fasteners, has agreed to acquire the precision forgings operation of Dana Spicer in the UK. Other Indian component groups, such as Amtek Auto, are looking for companies to buy abroad.

A Chinese company has been in the running for control of Peguform, and Japan’s Nihon Keizai Shimbun newspaper reported last week that China’s largest privately owned supplier, the Wan Xiang Group, is looking to acquire a body parts manufacturer in Japan.