A PwC study shows European austerity measures significantly impacted the continent's automotive industry and North American firms are poised to take advantage.
DETROIT—Global automotive industry merger and acquisition (M&A) activity slowed during the first half of 2012, according to PwC’s global automotive practice.
The first two quarters of 2012 saw 264 deals closed with a disclosed value of $10.6 billion, compared to 303 completed deals with a disclosed valued at $18.8 billion booked in the first half of 2011.
“Europe is taking a toll on global M&A deal activity,” said Paul Elie, U.S. automotive transaction services leader, PwC.
The current economic crisis and ensuing austerity measures significantly impacted the automotive industry, with new car registrations declining by 6.3 per cent.
PwC’s Autofacts expects 2012 annual sales for Europe to decline by 7.3 per cent to 12.6 million units, nearly 3.4 million units less than the 2007 peak.
Given the current manufacturing footprint in Europe, the region is now straddled with nearly 5.8 million units of excess light vehicle manufacturing capacity.
The study predicts an increase in M&A activity geared towards acquiring technology and/or market access over the next 12 to 18 months.
North American Rebound
Unlike Europe, North America underwent restructuring during the recession, and is now attracting investment and churning out profits, providing strategic buyers with the financial resources to execute M&A strategies.
As a result, North American acquirers’ share of global M&A increased from 20 per cent in 2010 to 26 per cent so far in 2012. North American entities were also the most prominent cross-border acquirers, with 16 out of 46 cross border deals.
Asia was the most active region with more than a third of the global automotive M&A activity during the first half of 2012. However, most activity was intra-regional, with 86 out of 98 transactions between Asian entities.
With domestic sales down in both China and India, buyers from these markets may look for opportunities to augment domestic sales. These buyers are also likely to pursue technology deals to compete globally, as well as to defend against foreign competition.
Component suppliers showing resilience
While deal activity slowed across all categories, component suppliers were the most resilient, registering a five per cent decline in deal volume compared to 19 per cent and 21 per cent declines in vehicle manufacturers and other categories, respectively.
A recent PwC supplier consolidation study predicts sustained component supplier M&A activity, with sub-categories such as chassis and powertrain systems as the focal points.
The study also shows North American buyers are the most likely to drive M&A activity among suppliers, due to their relative financial strength compared to Europe and Japan.
Deal activity outlook positive
PwC’s positive outlook for M&A stems from expectations the global automotive sector will add nearly 30 million units between 2012 and 2018. Technological changes and industry fragmentation will drive M&A activity, although the timing for an increase remains uncertain.