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M&A activity down in automotive sector but outlook remains positive

Merger and acquisition (M&A) activity has dropped in the automotive sector, new statistics show. However, experts still believe the outlook for M&As remains positive.

New data from PwC reveals that M&A activity in the automotive sector slowed down in the first half of this year, with 264 deals being closed at an estimated value of $10.6 billion. This is a significant drop since the first half of 2011, when 303 deals were closed to the value of $18.8 billion.

Paul Elie, US automotive transaction services leader for PwC, commented on the trend, "Europe is taking a toll on global M&A deal activity. Historically, Europe has been among the most active regions in automotive M&A. That said, automotive companies from emerging countries like China and India have opportunities to acquire technology or market access at favorable valuations in Europe."

A number of factors have contributed to the downturn in M&As in the automotive sector, with the main one being the ongoing economic crisis, which saw car registrations drop by 6.3 per cent in the first six months of this year.

PwC’s Autofacts predicts that annual car sales in Europe will fall by a 7.3 per cent, which would take the annual total to 12.6 million units, over 3 million units below the 2007 high point.

However, it is not all bad news for Europe. The operating environment in Europe may result in positive valuations and a growth in inbound M&A activity over the next couple of years, particularly around the acquisition of technology and market access.

Outside of Europe, North America is continuing to attract more investments, after it underwent restructuring during the 2008/9 recession. Thanks to this, North American operations are benefiting from healthy profits, resulting in them having cash available to invest in M&A deals. North America’s share of M&A deals is now up to 26 per cent, from 20 per cent in the first half of 2011.

Asia was the most active region for automotive M&As in the first half of 2012. However, 86 of the 96 M&A transactions took place within Asia. As internal sales slow down in India and China, buyers are likely to be looking for ways to boost sales and they may also be on the lookout for technology deals in a bid to remain globally competitive.

Although deal activity was down across all sectors, component manufacturers fared the best, suffering only a 5 per cent drop, compared to drops of 19 per cent and 21 per cent in vehicle manufacturers and other categories respectively.

M&A activity has dropped for both trade and financial suppliers compared to this time last year, the PwC figures show. M&A volume for financial buyers fell to 22 per cent, the lowest it has been since 2008/9. Financial buyer activity was mainly based around component supply with over half of the deals being in this area.

PwC expects M&A activity for the global automotive sector to grow by 300 million units between now and 2018. However, due to technological changes and industry fragmentation, a clearer timescale for growth is not in place yet. |

Paul Elie said, "PwC maintains positive expectations for deal activity contingent upon the following conditions: Successful resolution of Europe's sovereign debt crisis; strong economic recovery in developed markets such as the US and Japan; and resumption of trend line economic growth in emerging markets like China and India."    

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