Mergers and acquisitions in the automotive industry might not be where they were 10 years ago, but there’s renewed interest of late, says Jeff Zaleski, a partner specializing in M&A activity at PricewaterhouseCoopers (PwC) in Detroit.
1. DDN: From an M&A standpoint, where in your view does the automotive industry currently stand?
JZ: Automotive mergers and acquisitions are down since their peak in 2007. We don’t have the December version of PwC’s semiannual Automotive M&A Insights (report) yet, but we think it will show that 2013 volumes were down in comparison to 2012. Leading up to 2007, there was a lot of consolidation in the industry as vehicle manufacturers focused on reducing the number of suppliers they were working with coupled with the desire to have global suppliers that could support global platforms.
2. DDN: What’s pushing the M&A movement today?
JZ: Today, the M&A activity is being driven by technology and innovation, the desire for advanced power trains, increased use of electronics in vehicles, etc. Of the automotive executives surveyed in PwC’s (most recent) Global Innovations Survey, one third said that improving products is their top innovation priority. About the same number, or 32 percent, plan to generate radical or breakthrough innovations in the near term. As that relates to M&A activity, it’s not as much about getting bigger to leverage their cost structure. It’s more about gaining access to that technology and innovation.
3. DDN: What do you expect to see in the coming year?
JZ: We saw strong momentum in the M&A markets in the second half of 2013 and that is expected to continue into 2014. I would expect cross border M&A activity to continue to be a larger component of overall M&A activity as suppliers continue to look at emerging markets for growth, specifically China. In the United States, we expect automotive M&As to be driven by power train and electronic segments. That’s where we see the biggest consolidation in the coming years. And that’s largely as companies focus on technology and innovation as enablers to respond to changing demographics, changing demands, and increased regulatory requirements around mileage.
4. DDN: What might stand in the way of companies deciding to merge?
JZ: We just released our Shareholder Value Awards at the Automotive News World Congress, and what that would tell you is that shareholder value has increased substantially over the last three years. So we’re looking at a very healthy industry. That is what’s driving part of our positive outlook for 2014. Companies have healthy balance sheets. Earnings continue to grow. So we would look for them to put those earnings to work and continue to look for more and more M&A opportunities in 2014. What could change those plans? Macroeconomic events that have broader implications on the growth in vehicle sales.
5. DDN: Are there any other significant trends you’ve noticed?
JZ: Part of what we’ve been talking a lot about lately is Michigan and southeastern Michigan. Although I don’t want to talk about specific companies or specific deals, what I can say is we have seen an increase in divestiture activity (or companies selling a piece or whole part of their business). We expect those divestitures to continue. I would also expect to see more collaboration and partnerships as automotive companies focus on advanced power trains and other technologies.