Global Automotive M&A Deal Activity is Expected to Exceed 500 by Year's End, reports PricewaterhouseCoopers LLP
Detroit, August 6, 2008 ― Global automotive M&A deal volume in the first half of 2008 remains relatively strong based on data analyzed by PricewaterhouseCoopers: the market still appears to be on course to exceed 500 closed deals for the tenth year out of the past eleven, as was anticipated in Drive Value, PricewaterhouseCoopers' 2007 Automotive M&A insights publication.
The global credit crunch and economic downturn in the U.S. have led to a decline in deal volume from the high levels seen in 2007. However, the first half of 2008 shows activity similar to the same time period in 2005, and represents only a slight decline from the average first half of the year deal volume between 2005 and 2007. A total of 289 deals and disclosed value of $13.2 billion were closed in the first half of 2008, compared to 333 deals and disclosed deal value of $19 billion in the first half of 2007. Overall disclosed deal value has fallen 30 percent from the first half of 2007 and is down 25 percent from the average first half of the year's disclosed deal value during the prior three years.
"It is difficult to compare 2008 to the activity of 2006 and 2007 because they were booming years for automotive deals," said Paul McCarthy, U.S. automotive transaction services strategy leader, PricewaterhouseCoopers LLP. "With the decline of 'mega-deals', there has been a large drop in the overall disclosed deal value. However, deal volume has seen only a moderate decline."
During the first half of 2008, disclosed deal value in the component supplier sector was $3.1 billion, down 55 percent, compared to $7 billion in the first half of 2007. In 2007, seven supplier M&A deals totalled more than $1 billion each, and two of these "mega-deals" closed in the first half of that year. By contrast, there were no supplier deals over $1 billion in the first half of 2008. However, first half 2008 component supplier deal volume declined only 19 percent from the first half of 2007, and remains relatively flat compared with the first half of 2005 and 2006, respectively.
"Historically, transactions in the second half of the year represent a larger proportion of full year deal value," said Paul Elie, U.S. automotive transaction services leader, PricewaterhouseCoopers LLP. "Therefore, the total disclosed deal value for the first half of 2008 may not accurately project year-end figures."
In 2008, automotive M&A activity is primarily being driven by trade buyers, whereas financial buyers remain largely on the sidelines. Financial buyer activity significantly decreased in both deal volume and disclosed value. Financial buyer deal volume declined 58 percent, to 34 deals compared to 80 deals the same period a year ago. Their disclosed deal value declined 72 percent, a $5.9 billion decrease versus the same period in 2007.
The three largest disclosed deals combined accounted for almost $8 billion, or more than 50 percent of the total disclosed deal value for the first half of 2008. Total 2008 deal value could grow significantly if a major transaction is closed in the second half of the year.
On a regional basis, Asia and the U.S. witnessed similar levels of deal activity, with Asia recording 73 transactions with a disclosed value of $2.2 billion and the U.S. recording 82 transactions with a disclosed deal value of $2.0 billion. If regional disclosed value trends persist for the remainder of 2008, the U.S. share of global disclosed deal value will reach its lowest level in the past seven years. A strong level of outbound deal flow from Asia suggests that automotive companies in developing markets are poised to accelerate expansion into the global marketplace.
"We are observing the early stages of an increasing trend of emerging market players acquiring major companies in established markets in order to achieve access to global customers, markets, and technology," said McCarthy.
The devaluation of the U.S. dollar has not attracted increased foreign investment to date. This is likely the result of weakness in the U.S. economy and its automotive market, which appears to be causing would-be acquirers to reconsider or delay U.S. M&A investments until they have more clarity about the magnitude of downside risk.
"The automotive sector continues to restructure in response to the challenges of a changing global economy," said Elie. "Managing rising commodity costs and manufacturing footprint realignment will be keys to success in the global automotive industry in the next decade. M&A continues to play a major role and serves as a catalyst to help advance this transformation of the industry.
For more information on PwC's automotive deal capabilities and to download Drive Value, PricewaterhouseCoopers' 2007 Automotive M&A insights publication, please visit: www.pwc.com/auto.
The PwC Transaction Servicesgroup 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 negatively impact deal value and/or timing. Our global network of over 4,000 transaction professionals and more than 400 capital market specialists operate in 16 U.S. cities and some 90 locations in North America, Latin America, Europe, and Asia.
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Note to editor:Drive Value, PricewaterhouseCoopers' 2007 Automotive M&A insights publication is available for download at www.pwc.com/auto in the publications tab. The 2008 Automotive M&A Insights will be published in February, 2009.
