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Automotive transactions and trendsGlobal automotive mergers and acquisitions review3Q 2014 (July–September)
2 | Automotive transactions and trends 3Q 2014
Mark ShortGlobal Automotive and Transportation Industry Leader, Transaction Advisory Services
“ The automotive sector is the leading industry sector for driving future transactions. Optimism in the sector has never been higher. Stronger balance sheets, combined with continued debt financing opportunities, are positioning automotive companies to embark on a new wave of transactional initiatives. Middle-market transactions, those valued up to US$250 million, will comprise the bulk of deals in the sector. Continued focus on expanding core product opportunities, coupled with increasing the mix of new products and services, are key criteria for driving M&A activity.”
M&A momentum in the auto sector to be driven by middle-market transactions
Executive summaryRecord deal activity achieved in the automotive sector in 3Q14 driven by the supplier sub-sector and developed markets
Sub-segment insights Regional scenario
Share of suppliers in deal values, highest in last two years
84%Share of US (top target market) in deal values
79%
Growth in fleet and leasing deal values y-o-y
2xShare of Germany (top acquiring market) in deal values
2/3
Growth in deal values y-o-y and a 48% increase q-o-q (second highest in last eight quarters)
Rise in deal volumes y-o-y, indicating a sharp rise in average deal size y-o-y
3X 8%Deal activity
3Automotive transactions and trends 3Q 2014 |
Cross-border deals scenario in 3Q14Companies continue to focus their M&A activity around a core group of developed and top-tier emerging countries
USA
Brazil
Europe
India
Singapore
Australia
US to China: 1 deal (US$60m)
UK to US: 1 deal
Germany to US: 2 deals (US$13.4b)
Japan to Spain: 1 deal (US$183m)
68 domestic deals
China17 domestic deals 9 domestic
deals
67 domestic deals
US to Brazil: 2 deals
US to UK: 3 deals
China to Germany: 2 deals
France to China: 1 deal
China to Australia: 1 deal (US$83m)
Japan to India: 1 deal (US$
86m
)
China to Singapore1 deal (US$364m)
Japan
Source: Dealogic
4 | Automotive transactions and trends 3Q 2014
Strong confidence in the likelihood of deals closing and also in the number and quality of acquisition opportunities
Deals closure scenario in 3Q14
Source: Dealogic
100% 99% 98% 99%96%
93%
86%82%
83% 83% 82%
89%
83% 83%
75%80%
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Deals completed (%)
Deals completed in the same quarter (%)
Overall completion rate for deals announced in last eight quarters
94%
Deals closed in the announced quarter, average during 4Q12-3Q14
82% *Based on deal volumes
Deal completion scenario* in the last 2 years
Growing confidence in the M&A market**
** Insights from our latest Capital Confidence BarometerSource: Capital Confidence Barometer, EYGM Limited, 2014.
Confidence in number of acquisition opportunities (up from 57% in Oct 2013)
65%Confidence in likelihood of deals closing (up from 36% in Oct 2013)
54%Confidence in quality of acquisition opportunities (up from 38% in Oct 2013)
59%
5Automotive transactions and trends 3Q 2014 |
Parts and equipment (supplier) transactions
Sub-segment M&A trends and drivers
Car and truck manufacturers (OEMs) transactions
3Q14 analysis
3Q14 analysis
• OEM deal values reported a slight decline of 3% as compared to 3Q13, however, it more than doubled q-o-q. Deal volumes remained almost flat as compared to 3Q13 and declined by 19.0% q-o-q.
• China and the US were the largest acquirer countries with a 94% share in deal values.
• Deal activity in this quarter was driven by mergers of subsidiary firms with their parent firms in China to strengthen operations and create synergies through restructuring.
• Supplier deal values sored five times as compared to 3Q13 and increased by 90% q-o-q driven by consolidation strategy adopted by suppliers to establish a global foothold and get access to new technologies.
• Germany and the US emerged as the largest acquirer countries with a 88% share in deal values, while the US was the single largest target nation accounting for close to 88% share.
• ZF has acquired TRW in a US$13.4 billion deal, creating a combined company that will be third-largest supplier in the world after Bosch and Denso, ahead of Continental.
Source: Dealogic
Source: Dealogic
76%
85%
Share of top three deals in total deal values in latest year (4Q13–3Q14)
Completion percent of deals announced in last one year (4Q13–3Q14) based on deal volumes
88%
25%
Completion percent of deals announced in latest year (4Q13–3Q14) based on deal volumes
Share of cross border deals in total deal volumes
OEMs deal highlights
Supplier deal highlights
2,866 3,631
934 1,705 969
14,868
755 1,647
30 28 26
16 17
34
2117
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Deal value (US$m) No. of deals
5,013
2,093 4,216
2,958 4,544
7,736 8,747
16,656
109
8592
83 82
110
8497
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Deal value (US$m) No. of deals
M&A strategy outlook
Expanding presence in the US and emerging markets
Operational restructuring Access to energy efficient technologies
M&A strategy outlook
Consolidation to create cost synergies and geographic diversification
Gaining access to new safety, electronics and connectivity technologies
Liquidation on non-strategic business divisions
6 | Automotive transactions and trends 3Q 2014
Fleet and rental transactions
3Q14 analysis• This segment’s deal values grew by 47% as com-
pared to 3Q13, but declined by four times q-o-q. In comparison, deal volumes declined by 23% as compared to 3Q13, pointing towards a sharp increase in average deal size.
• US and South Africa were the largest target nations.
• Icahn Enterprises (a diversified firm run by a billionaire investor Carl Icahn) acquired 8.5% stake in Hertz Global holdings for a value of US$470.5 million.
Source: Dealogic
76%Share of Americasregion in deal values in latest year (4Q13–3Q14)
91%Completion percent of deals announced in latest year (4Q13–3Q14) based on deal volumes
Fleet and rental deal highlights
Deal value (US$m) No. of deals
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14222
716 305 474 348
1,402
3,144
697 9
4033
40 3729
4331
3Q14 analysis• Retail and aftermarket deal values declined
by 44% as compared to 3Q13, while it grew by 9% q-o-q.
• Deal volumes increased by 15% as compared to 3Q13, indicating a decline in average deal size.
• China and Singapore were the largest target nations, accounting for close to 80% of deal values.
• WBL Corporation (a subsidiary of Singapore listed United Engineers) sold its luxury car distri-bution business to StarChase Motorsports for a value of US$363.9 million.
Source: Dealogic
88%Share of Asia-Pacificregion in total deal values in 3Q14
94%Completion percent of deals announced in latest year (4Q13–3Q14) based on deal volumes
Retail and aftermarket deal highlights
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
516 973
407
1,655 1,623 1,152 841 921
8168 72 72 68 69 68
83
Deal value (US$m) No. of deals
Data source and industry scopeThe analysis and perspectives in Automotive transactions and trends are based on global financial releases and Dealogic data.Deal activity and valuations may fluctuate slightly based on the final date of data collection and analysis by EY.
Retail and aftermarket transactions
Sub-segment M&A trends and drivers
Expanding distribution network in emerging countries
Digital transformation to drive customer engagement
Enabling integrated ownership and maintenance packages
M&A strategy outlook
Access to new geographies PE/VC funding in tech-based start-ups
Enabling integrated mobility services
M&A strategy outlook
7Automotive transactions and trends 3Q 2014 |
The CapitalAgenda
Raisin
g Investing
Preserving Optim
izing
Do you have the right capital structure to meet your strategic priorities?• Integrate government incentives, direct loans and
guarantees in capital-raising strategies• Refinance debt, equity and other obligations• Execute “loan-to-own strategies” providing
opportunities to raise capital
What is the best way for your company to grow and is it aligned to core business?• Perform increased stress testing of investment
business cases• Select acquisition of market share, technologies
or geographic coverage• Perform mobility business readiness assessment
and integration methodology, as well as revenue synergy analysis
How can you improve the performance of your assets?• Balance cost reduction with sustainable process change• Institutionalize and integrate working capital initiatives• Divest carefully – implement risk management process
around divesture cycle to maximize cash benefits
What steps can you take to maximize your portfolio’s performance?• Improve information flows to support enhanced
visibility of liquidity and cash risks• Enhance business modelling and cash forecasting
systems and capabilities• Maintain a dynamic business and product portfolio
assessment process to support liquidity needs
Capital and M&A outlook
EY’s Capital Agenda — key considerations and implications
Diverse funding sources for M&A
Internal cash flow
Private equity
Loans from financial
institutions
Asset management
Venture capital or angel investors
Activist investors
Access to diverse funding sources to drive strategic acquisitions in the automotive marketplace
For a conversation about your capital strategy, please contact us:
EY | Assurance | Tax | Transactions | Advisory
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Acknowledgments
Special thanks to EY Knowledge automotive analysts Abhishek Gupta and Bhaskar Mazumdar for the analysis and compilation of this study.
Randall MillerGlobal Automotive and Transportation Industry Leader +1 313 628 8642 [email protected]
Mark ShortGlobal Automotive and Transportation Industry Leader Transaction Advisory Services +1 313 628 8760 [email protected]
Jim CarterAmericas Automotive and Transportation Industry Leader Transaction Advisory Services +1 313 628 8690 [email protected]
Stephan HellmannPartner, Transaction Advisory Services + 49 6196 996 25030 [email protected]
Tony TsangFar East and Oceania Automotive Industry Leader Transaction Advisory Services +86 21 2228 2358 [email protected]
Peter WespPartner, Transaction Advisory Services +49 6196 996 27282 [email protected]
Anil ValsanGlobal Automotive and Transportation Lead Analyst +44 20 7951 6879 [email protected]
Regan GrantGlobal Automotive and Transportation Marketing Leader +1 313 628 8974 [email protected]
