East or West? Where should automotive suppliers look for investors?
August 27, 2014
After several years in reverse, 2014 has shown the first increase in deals targeting automotive suppliers since 2011. The first half of 2014 showed a notable acceleration in deal volumes and, by the time we reach the chequered flag of the year end, we anticipate that deal volumes will show a significant performance improvement with a year on year increase of 15% over 2013.
Overall, we’re on the up
However, whilst volumes have increased, the average deal size has slightly dropped from $65 million to $58 million; but because of the increased volumes, we anticipate a total of $15 billion of deals will be driven to a completion in the auto sector by the year end. This would be 25% higher than last year.
So with such an active mergers and acquisitions (M&A) market, where should you look to find an investor? Based on activity in the first half of 2014 the answer would be to look west. Over the first half of the year, North American companies have been the primary buyers for automotive suppliers in 32% of deals, replacing European suppliers (30%) as the most frequent buyers.
There’s more to the East than China
Looking east, whilst Chinese buyers have not increased their buying activity, Korean buyers are showing an increased appetite for auto acquisitions and represented 9% of all deals (6% previous year).
And where are these investors looking for acquisition targets? In geographic terms, European and North American suppliers are still the main targets for consolidation representing 67 % of all deals closed. This means the UK is once more, becoming a sought after market for auto acquisitions.
Fuel efficiency and personalisation
In terms of areas of supply, the continued drive for more fuel efficient, lightweight vehicles, means the main focus of activity continues to be around in the areas of Chassis and Powertrain systems, which represented 46% of all auto deals globally. However, exterior suppliers are becoming more popular targets growing from 8% to 10% due to the increasing trend for consumers to want a higher degree of personalisation of vehicles.
But strategic trade buyers have not had it all their own way. Private equity (PE) firms are also further increasing their activity in the auto supplier sector - on average one in every five deals involves PE buyers.
All of this means that if you are a participant in the UK auto supply chain, now is definitely a good time to review your situation and analyse your strategy.
What do you think the future holds for automotive suppliers in the UK? Share your thoughts in the comments box below or if you’d like to discuss your situation in more detail feel free to set up a meeting.