Economic and Automotive Industry Uncertainty Contributed to Significant Decline in Global Auto M&A Deal Activity in 2008

Automotive Companies’ Deal Volume Decreased and Value Plummeted as Industry Struggled
1061

DETROIT, March 26, 2009 (PRNewswire) — Overall economic and automotive industry uncertainty contributed to the decline of automotive M&A deal volume and value in 2008, according to PricewaterhouseCoopers’ report, Automotive M&A Insights. Following a remarkable deal market in 2007, closed deal volume declined 9 percent to 549 transactions in 2008 compared to 604 the previous year. The disclosed value dropped 45 percent to $31.6 billion in 2008 from $57.1 billion in 2007. The lack of available financing forced many acquirers to stay on the sideline or shift focus and execute smaller transactions. However, industry restructuring – especially if it is linked with increasing access to financing – may encourage deal flow to return.

The mega-deals that drove deal market value in 2007 were noticeably absent in 2008, with the top five transactions worth a combined $16.3 billion versus $33.0 billion in 2007. Despite this, there were still 13 completed deals valued at more than $500 million that combined to account for 72 percent of the total disclosed deal value.

“The economic conditions and lack of available credit contributed to the absence of the mega-deals that we have seen in recent years,” said Paul Elie, U.S. automotive transaction services leader, PricewaterhouseCoopers LLP. “Potential transactions were not completed or were terminated because of the distress felt across the industry. Economic and credit conditions that allow automotive companies to return to profitability and financial viability are likely preconditions for the return of a vibrant deal market.”

Meanwhile, automotive companies continue to restructure to maintain liquidity in the face of the economic downturn.

“An eventual increase in M&A deal activity is inevitable as automakers and suppliers reorganize to achieve financial viability,” said Paul McCarthy, U.S. automotive transaction services strategy leader, PricewaterhouseCoopers LLP. “Although there have been government funds to the supply base, such as the $5 billion aid package for suppliers in the U.S. and equity stakes in France, further government liquidity assistance will likely be necessary to specifically support the consolidation and rationalization that is necessary to move the industry to a sustainable state.”

Financial buyers were responsible for only 17 percent of global transacted value in 2008, versus 44 percent in 2007 and 54 percent in 2006. In the U.S. in particular, financial buyers were largely inactive in the latter half of 2008, closing deals worth only $271 million in value in the second half of the year versus $2.5 billion in the first half of the year. Volume declined approximately 17 percent from 143 deals in 2007 to 118 deals in 2008 while total disclosed value declined approximately 78 percent from $25.1 billion in 2007 to $5.5 billion in 2008.

“While economic instability pervading the automotive market is the current concern, managing volatile commodity costs and manufacturing footprint realignment will also be keys to success in the global automotive industry in the next decade,” emphasized Elie.

McCarthy noted, “Companies must remember that successful transactions during downturns have historically yielded better returns. The financially healthy and successful companies of tomorrow may very well be forged through M&A today.”

For more information on 2008 Automotive M&A Insights and to download the full publication, visit: www.pwc.com/auto.

The PwC Transaction Services (TS) group of PricewaterhouseCoopers offers a deal process that helps clients bid smarter, close faster and realize profits sooner on mergers, acquisitions, sales and financing transactions. For companies raising money on U.S. or overseas capital markets, we offer a strategic perspective, practical solutions and a holistic service approach that helps management anticipate and resolve a broad array of transaction, financial reporting, and registration process challenges before they can have a negative impact on deal value or timing. Our global network of over 4,000 transaction professionals and more than 400 capital markets specialists operate from 16 U.S. cities and some 90 locations in North America, Latin America, Europe and Asia.

About PricewaterhouseCoopers

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 155,000 people in 153 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

(C) 2009 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity.

Facebook Comments