Automotive transactions and trends Global automotive mergers and acquisitions review 2Q 2014 (April–June)
2Q14 deal highlights
122% Growth in deal values y-o-y, however, it declined 45% q-o-q
10% Decline in deal volumes y-o-y, indicating a rise in average deal size y-o-y
67% Share of parts and equipment manufacturers in deal values, highest in last two years
Robust global automotive deal activity in 2Q14 The first half of 2014 has been very positive for the global automotive sector with strong growth, particularly in developed markets and, as expected, companies announcing big-ticket M&A transactions. 2Q14 deal values were the third highest in the last eight quarters led by the suppliers and leasing sub-segments primarily in the Americas region. Private Equity (PE) funds continue to capitalize on the bull run in the stock markets to exit their automotive investments at substantial profits. Simultaneously, new PE players find value in acquiring stakes at current valuations, which underline the growth potential of the automotive sector. Interestingly, the Original Equipment Manufacturers (OEMs) sub-segment witnessed medium-sized strategic divestment deals in the Commercial Vehicles (CV) space in Turkey and China. Also noteworthy is the fleet and leasing sub-segment that has witnessed big-ticket Venture Capital (VC)/PE investments in innovative technology-based mobility companies, driving high valuations. Looking ahead, transactions in the automotive sector should be driven by positive economic sentiment, enhanced credit availability, as well as increased confidence in the number and quality of opportunities and likelihood of deals closing. Market
10X Increase in fleet and leasing segment deal values y-o-y and five times increase q-o-q
73% Share of US and China (top acquirer countries) in deal values
USA China Brazil Germany Turkey India UK Japan Others Total
Value (US$b) 8.8 1.4 1.0 0.7 0.4 0.2 0.1 0.1 0.3 13.0
Volume 49 24 3 15 2 7 14 13 63 190
Top target markets by deal values in 2Q14
67%
11% 8%
Source: Dealogic
71% Completion rate by deal volumes within the same quarter
Mark Short Global Automotive Industry Leader Transaction Advisory Services
Automotive sub-sector transactions analysis and outlook Car and truck manufacturers (OEMs) 2Q14 analysis •
OEM deal values exhibited a marginal decline of 5% y-o-y and a steep decline of 94% q-o-q (due to effect of VW/Scania and Fiat/Chrysler deals in 1Q14). Meanwhile, deal volumes declined 15% y-o-y and 35% q-o-q. •
Turkey, China and Russia were the largest acquirer countries with a 90% share by deal value — driven by medium-sized strategic divestments in the commercial vehicle space. •
Firms with diversified business interests have acquired these divested divisions to gain access to defense vehicle manufacturing and energy efficient vehicle manufacturing businesses.
Outlook
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OEM deal highlights 14,868
9,554 30 34 2,866
28
70% 93%
34 26 16
3,631 934
1,705
22
16 969
885
Contribution of top two deals in total deal value in the past year (3Q13–2Q14)
3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Deal value (US$m)
No. of deals
Source: Dealogic
Completion percent of deals announced in the past year (3Q13–2Q14) based on deal values as compared to 82% by deal volumes
OEMs are expected to continue to adopt a cautious approach toward deal making, with a focus on restructuring of operations, generating synergy from past acquisitions, expanding the geographic footprint and gaining access to new technologies.
Parts and equipment manufacturers (suppliers) 2Q14 analysis •
Supplier deal values more than doubled y-o-y and increased by 23% q-o-q, driven by strategic secondary PE buyouts/exits in the Americas region. US, China and France were the largest acquirer countries with a 95% share in deal values, while the US, Brazil and China were the largest target nations with a 90% share. •
Blackstone’s acquisition of Gates Global for US$5.4b, from Onex Corp and Canada Pension Plan Investment Board, was the largest PE buyout of an industrial company in the last four years.
•
Michelin acquired Sascar Participações SA from the Latin American PE firm, GP Investments, to expand its presence in the professional truck fleets telematics market. Outlook
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Supplier deal highlights 109 91
108 84
92
83
82
5,013
8,681
7,045
4,544
4,216
75
2,958 2,093
1,776
67% 35% Share in deal values in 2Q14, second highest in last eight quarters
3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Deal value (US$m)
No. of deals
Source: Dealogic
Completion percent of deals announced in the past year (3Q13–2Q14) based on deal values as compared to 85% by deal volumes
Transaction activity in this segment is expected to be driven by strategic exits by PE firms amid strong stock market performance and suppliers’ focus on increasing global presence, liquidation of non-strategic business divisions and gaining access to new safety and electronics technologies.
Car and truck sales and repair (retail and aftermarket) 2Q14 analysis •
Retail and aftermarket deal values were flat y-o-y, while declining by 68% q-o-q. As compared to this, deal volumes declined by 10% y-o-y, indicating a small increase in average deal size.
•
UK, Japan and Malaysia were the largest target nations, accounting for two-thirds of deal values. •
This segment witnessed certain strategic PE investments/divestments for funding expansion plans and, in some cases, paving the way for IPOs. Outlook
2
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Retail and aftermarket deal highlights 78
81 68
72
72
68
65
65
3,729
516
973
1,655 1,623
1,262
407
405
3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Deal value (US$m)
No. of deals
Source: Dealogic
Companies need to enhance distribution networks in emerging markets, improve customer experience through digital marketing solutions and provide integrated connectivity services. In addition, PE investments are expected to drive retail and aftermarket segment deals.
| Automotive transactions and trends 2Q 2014
73% 92% Share of Asia-Pacific region in deal values in 1H14 (1Q14–2Q14), followed by 15% for EMEIA
Completion percent of deals announced in the past year (3Q13–2Q14) based on deal values as compared to 90% by deal volumes
Fleet and leasing 2Q14 analysis •
Fleet and leasing segment deal values grew by nine times y-o-y and four times q-o-q. As compared to this, deal volumes increased by 26% y-o-y, indicating a sharp increase in average deal size. •
Fleet and leasing deal highlights 4,592
26
US was the largest target nation, accounting for 95% of deal values. •
Element Financial completed a 100% acquisition of PHH Arval for US$1.4b to create a leading position in the North American fleet management market. •
20 635
9 222
3,036 23
27
24
295
465
228
29
13 597
3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Deal value (US$m)
No. of deals
Source: Dealogic
This quarter witnessed big-ticket VC/PE investments of US$1.2b and US$250m in Uber Technologies and Lyft Inc, respectively. Uber’s valuations rose to an unprecedented US$18b, underlining investors’ confidence in companies riding the wave of the new collaboration economy.
Outlook
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80% 91% Share of Americas region in deal values in 1H14 (1Q14–2Q14), followed by 13% for EMEIA
Completion percent of deals announced in the past year (3Q13–2Q14) based on deal values as compared to 88% by deal volumes
Transaction activity in this segment is expected to be driven by capital requirements of players to access new geographies and expand product offerings/solutions. Government and private sector initiatives to provide integrated personal mobility solutions are expected to drive consumer adoption and entry of new players.
Data source and industry scope The analysis and perspectives in Automotive transactions and trends are based on global financial releases and Dealogic data. Automotive covers vehicle (car and truck) manufacturers, parts and equipment manufacturers, retail and distribution (vehicles and parts), and fleet and leasing (fleet management, rental, car sharing) companies. Deal activity and valuations may fluctuate slightly based on the final date of data collection and analysis by EY.
EY’s Capital Agenda — key considerations and implications 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
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Perform increased stress testing of investment business cases given the uncertain volume levels Select acquisition of market share, technologies or geographic coverage Perform mobility business readiness assessment and integration methodology, as well as revenue synergy analysis •
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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
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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
Automotive transactions and trends 2Q 2014 |
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For a conversation about your capital strategy, please contact us: Randall Miller Global Automotive Industry Leader +1 313 628 8642
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Mark Short Global Automotive Industry Leader Transaction Advisory Services +1 313 628 8760
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Jim Carter Americas Automotive Industry Leader Transaction Advisory Services +1 313 628 8690
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Stephan Hellmann Partner, Transaction Advisory Services + 49 6196 996 25030
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Tony Tsang Far East and Oceania Automotive Industry Leader Transaction Advisory Services +86 21 2228 2358
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Peter Wesp Partner, Transaction Advisory Services +49 6196 996 27282
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Anil Valsan Global Automotive Lead Analyst +44 20 7951 6879
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Regan Grant Global Automotive Marketing Leader +1 313 628 8974
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Acknowledgements Special thanks to EY Knowledge automotive analysts Abhishek Gupta and Bhaskar Mazumdar for the analysis and compilation of this study.
EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. How EY’s Global Automotive Center can help your business The global recession reset the automotive sector landscape. As the sector recovers, automotive companies across the value chain must focus on profitable and sustainable growth, financial and operational stability, investments in new technologies and seizing opportunities in high-growth markets. If you lead an automotive business, you need to anticipate trends, identify implications and make informed decisions that support your business goals. Our Global Automotive Center enables our worldwide network of more than 7,000 sectorfocused assurance, tax, transaction and advisory professionals to share powerful insights and deep sector knowledge with businesses like yours. These insights, combined with our technical experience in every major global automotive market, will help you to accelerate strategies and improve performance. Whichever segment of the automotive sector you are in — from component suppliers to commercial or light vehicle manufacturers or retailers — we can provide the insights you need to succeed. © 2014 EYGM Limited. All Rights Reserved. EYG no. ED0121 CSG/GSC2014/1423204 ED None In line with EY’s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
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