automotive transactions and trends 1h16 · automotive transactions and trends 1h16 1 executive...

Automotive transactions and trends 1H16Global automotive mergers and acquisitions review

Produced by Global Markets — EY Knowledge

ContentsExecutive summary 01

03

04

06

07

11

12

Mark ShortEY Global Automotive and Transportation Industry Leader, Transaction Advisory Services

Analysis by deal sizes

Cross-border deals in 1H16

Transaction drivers for the automotive value chain

Automotive sub-sector transaction trends and drivers

Capital and M&A outlook

EY’s Capital Agenda considerations for key stakeholders

Digital disruption and innovation are driving the automotive M&A environment

The automotive sector has accepted the reality of an extended low-growth global economic environment, with modest or stable growth expectations.

Despite strong deal fundamentals and a healthy deal environment, automotive transactions slowed during 1H16, likely attributed to the Brexit, the US presidential election and moderating growth in China, among other drivers. Low interest rates, high levels of corporate cash and access to financing continue, however. If current economic worries prove to be short-lived, we could see transactions, particularly in the mid-market, pick up toward the end of the year.

Digital disruption and the blurring of sector lines have automotive companies planning for multiple possible futures. M&A plays a critical role within these scenarios, as an important, transformative option for expanding on the core products and services of today, and accelerating emerging businesses of tomorrow.

Automotive companies that successfully balance their M&A plans with strategic and innovative corporate initiatives will be well positioned to win in the evolving marketplace.

1Automotive transactions and trends 1H16 |

Executive summary

Sub-sector insights Regional insights

Share of component suppliers in the deal values in 1H16

42%y-o-y increase in retail deal values

~50%

The average deal size stood at US$138 million in 1H16

Source: Dealogic

y-o-y decline in deal values (US$27.6 billion)

19% 6%y-o-y decline in deal volumes (426 deals)

76%Share of deals with values up to US$100m

While deal fundamentals were supportive of a healthy transactions market, automotive deal activity slowed during 1H16. Automotive companies maintained a cautious dealmaking approach, focusing on synergy savings generation and expansion of geographic footprint.

Top target nations (volume)

Top acquiring nations (volume)

20%China

UK

US

16%

10%

20%China

UK

US

17%

9%

2 | Automotive transactions and trends 1H16

With economic sentiment broadly supporting transactions, automotive companies’ appetite for M&A remained strong, despite decreased deal volumes.

Overall completion rate for deals announced in last nine quarters

91%

Average deals closed in the announced quarter, during 2Q14 to 2Q16

79%

Deal completion scenario* in the last two years

Continued confidence in the M&A market**

*Based on deal volumes.** Insights from the latest Capital Confidence Barometer.Source: Dealogic and Capital Confidence Barometer

of automotive executives expect to pursue acquisitions in the next 12 months

52%of automotive executives have a positive level of confidence with regards to the number of acquisition opportunities

57%of automotive executives expect the M&A market to improve in next 12 months, while an additional 49% expect a stable M&A market

49%

99.6% 99.2% 97.6% 97.8% 96.9%90.5%

75.2%84.8%

73.8%81.1%

86.7% 83.0% 82.1%77.2% 80.6%

72.8% 77.0%70.5%

2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Deals completed in the same quarter (%)Deals completed (%)

Executive summary

Low- to middle-market transactions, those valued up to US$250 million, continue to dominate the automotive M&A space.

Deal volumes split by deal size, 1Q13–2Q16

•

82% 86% 87% 83% 79%89%

80%87%

75%82%

76% 77% 75% 77%

8%7% 9%

9%2%

7%5%

10%8% 15% 12% 16% 8%

10% 7% 4% 9% 13% 9% 12% 8%14% 10% 9% 11% 9%

15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Transaction values in US$ million>250101–250<= 100

• Gain market share in existing geographical markets

• Reduce costs and improve margins

• Access new technologies and intellectual property

• Move into new geographical markets

8%

2Q131Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Deal drivers

*Calculation based on deals with disclosed values.Source: Dealogic

Analysis by deal sizes



Cross-border deals in 1H16Companies continue to focus their M&A activity around a core group of developed and top-tier emerging countries.

Domestic deals Outbound deals Inbound deals

Japan(30)

China(83)

SouthKorea(14)

UK(44)

4 deals

1 deal

1 deal

3 deals

2 deals1 deal

1 deal2 deals

Germany(32)

US(106)

18%

19%63%

21%

24%55%

3%

21%

76%18%

12%

70%

7%

16%

77%

7%7%

86%

*The number in brackets represent total numbers of deals in that country/region.Source: Dealogic

Where a company operates is as important as the segments in which it operates. Enterprises that undertake a robust portfolio review often move toward geographies that fill gaps or are ripe for disruption.


Cross-border deals formed a significant share of high-value deals, driven by the improving investment climate.

*The size of the circle and the number represents deal volumes for deals with disclosed values.Source: Dealogic

Domestic Cross-borderDeal type

Dea

l val

ues

(in U

S$ m

illio

n)<1

0010

0–25

0>2

50 619

33

15 15

116

Key drivers for cross-border deals

Growing domestic demand for global products in emerging markets

Gradual easing of FDI and related regulatoryprocesses

Leverage cost base/economies of scale

Access strategic proprietary assets and low labor cost

Cross-border deals in 1H16

With global growth moderating and uneven, cross-border M&A strategies are driven by companies seeking pockets of growth abroad.Steady cross-border acquisition activities highlight the increasing interconnectedness within the global economy.


• Restructuring of underperforming operations

• Optimizing costs and achieving operational efficiencies

• Accessing emergent technologies and innovation, such as self-driving cars and light-weighting

• Re-engineering operations and infrastructure, and making selective growth investments

• Securing private equity/activist investments for business expansion/restructuring

• Increasing investors’ confidence in tech-based mobility providers driven by the new collaboration economy

• Establishing distribution network in domestic markets

• Enhancing core business model and services

• Enabling integrated service offerings

• Geographic diversification to manage regional demand volatility

• Expanding or rationalizing product portfolio to maximize return on capital

• Access to new customer segments, products and industrial solutions

Key M&Adrivers in

1H16

Fleet and rental

Retail an

d

afterm

arke

tSuppliers

Vehic

lem

anuf

acturers

Transaction drivers for the automotive value chain


969

14,868

6741,654

3071,491

3,901 1,903 2,2696,010

3,191

17

35

21 18

2621 21

2732

23

15

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Deal value (US$m) No. of deals

Innovation in theautomotive sector

is pushing M&A into ahigher gear. During 1H16,

deals were driven by business integrations aimed at capacity improvement,

networks in emerging markets and technology

advancement.

Deal values increased by 70% y-o-y to

US$9.2 billion

Deal volumesdecline by 9.5% y-o-y

Japan and China were the largest

acquirer countries with a combined 93% share in deal values

Fleet and rental

Retail an

d

afterm

arke

tSuppliers

Vehic

le

man

ufac

turers

Key M&Adrivers in

1H16

Source: Dealogic*The Porsche-Scania deal contributed more than 60% to the total deal value during 1Q14.

Vehicle manufacturers transactions

M&Astrategyoutlook

Operational restructuring tounlock capital for expansion

Access to autonomous driving

and connectivity technologies, and

future mobility solutions/services

Improving efficiency with complete integration of subsidiary

businesses

Deal indicatorsShare of the top five deals in 1H16 in total deal values

84% Completion rate of deals announced in 1H16 based on deal volumes

57% China and US deal volume share in total deals

50%


China, the US and Japan emerged as the largest acquirer countries with 64% share in deal values

Deal values declined by 45% y-o-y to US$11.4 billion, while deal volumes declined by more than 17% y-o-y

China, the US and Germany were the largest target nations, accounting for more than 60% share in deal values

Parts and equipment (supplier) transactions

1H16 deals were driven by portfolio rationalization and expansion

Fleet and rental

Retail an

d

afterm

arke

tSuppliers

Vehic

le

man

ufac

turers

Key M&Adrivers in

1H16

4,609

7,7718,917

16,600

1,606

15,255

5,6956,976

5,182

7,158

4,319

84

112

89

111100 100

111

8882

94

80

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16


Source: Dealogic

M&Astrategyoutlook

Continued portfolio

rationalization and expansion

Scaling-up of global presence,

monetization of non-strategic business

divisions

Gaining access to new safety

and electronics technologies



75% Completion rate of deals announced in 2Q16 based on deal volumes

69%


1,623 1,102 848 933

18,109

2,171798 1,109

2,9981,747

2,707

68 68 71

8680

65 62

77

60

86

57

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16


Fleet and rental

Retail an

d

afterm

arke

tSuppliers

Vehic

le

man

ufac

turers

Key M&Adrivers in

1H16

For 1H16China was thelargest target

nation, accounting for nearly 56%share of deal

values

China, the USand France

emerged as the largest acquirer

nations with a share of 82% in

deal values

Deal valuesincreased by 50%

y-o-y in 1H16, indicating rising level of mega deals being transacted; volumes

declinedby 17% y-o-y

1H16 dealswere driven by

enabling integrated service offering and

expansion of network

Source: Dealogic

M&Astrategyoutlook

Enabling integrated

service offerings

Expansion of distribution

networks

Expand presence in new geographies or related

business lines

Retail and aftermarket transactions




84%


348 1,071 294 709

61,523

4,275456 2,276 2,324 2,275 243

3728

43

3038 41

27 27 25

3728

4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16


Fleet and rental

Retail an

d

afterm

arke

tSuppliers

Vehic

le

man

ufac

turers

Key M&Adrivers in

1H16

1H16 deal activity focused on operational improvement and business expansion, as well as growing confidence in the business model of tech-based mobility companies.

Deal values declined by 46%,

whereas deal volumes declined

by 4% y-o-y, indicating a steep fall in the average

deal values

China, France and Hong Kong were the largest acquirer nations, contributing 73%

share by deal value

China, France and the US were

the largest target nations,

contributing 72% share by deal

value

Source: Dealogic

M&Astrategyoutlook

Enabling integrated mobility

products and services

Product and services portfolio

expansion for urban and business

customers

PE investments for geographic expansion and

improving operational efficiency

Fleet and rental transactions




75%


Capital and M&A outlookInsights from the Automotive Capital Confidence Barometer

Digital and innovation drive M&A market

Technology, digitaland changing customer

preferences fuel cross-sector M&A

Global economic confidence challenged

by regional political instabilities

M&A strategy focused on cross-border

acquisitions

Growth strategies focus on risk

management and digital technologies and

analytics

Respondents view the economy as either stable or modestly improving

86%

33%

Respondents cited access to new materials or technologies/digitalization as drivers for acquisition outside of automotive sector �

31%

Respondents cited changing customer behavior as a driver for acquisition outside of automotive sector

Respondents cited geopolitical instability as the greatestbusiness risk

28%

Respondents planningacquisitions outsidetheir immediate region

76%

Respondents planningdomestic acquisitions in the next 12 months

24%

Respondents focused on improving risk management to drive growth over next 12 months

53%

Respondents planning to make better use of digital technologies and analytics as growth drivers

48%

1 2 3 4

Note: Automotive Capital Confidence Barometer was a survey of 112 senior automotive executives from large companies around the world.


The CapitalAgenda

Raisin

g Investing

Preserving Optimizi

ng

What is the best way for your company to grow and is it aligned to core business?

How can you improve the performance of your assets?

What steps can you take to maximize your portfolio’s performance?

• Assess investment opportunities and risks associated with new segments and business models

• Use need-based and strategic alliances, JVs and acquisition to gain technology and geographic coverage

• Build flexibility in emerging market investments

Do you have the right capital structure to meet your strategic priorities?

• Improve information flows to support enhanced visibility of liquidity and cash risks

• Enhance business modeling and cash forecasting systems and capabilities

• Maintain a dynamic business and product portfolio assessment process to support liquidity needs

• Evaluate effectiveness of currency and raw material hedging strategies

EY’s Capital Agenda — key considerations and implications

• Integrate government incentives, direct loans and guarantees in capital-raising strategies

• Refinance debt, equity and other obligations

• Execute “loan-to-own strategies” providing opportunities to raise capital

• Balance cost reduction with sustainable process change

• Institutionalize and integrate working capital initiatives

• Divest carefully — implement risk management process around divesture cycle to maximize cash benefits

• Benchmark leading-class performance and pursue targeted change

For a conversation about your capital strategy, please contact us:

Acknowledgements

Special thanks to EY Knowledge automotive analysts Joe Sebestyen and Sudarshan Vyas for the analysis and compilation of this study.

Randall Miller Global Automotive and Transportation Industry Leader +1 313 628 8642 [email protected]

Mark Short Global Automotive and Transportation Industry Leader, Transaction Advisory Services +1 313 628 8760 [email protected]

Jim Carter Americas Automotive and Transportation Industry Leader, Transaction Advisory Services +1 313 628 8690 [email protected]

Constantin Gall GSA Automotive and Transportation Leader, Transaction Advisory Services +49 (711) 988114878 [email protected]

Tony Tsang Far East and Oceania Automotive Industry Leader, Transaction Advisory Services +86 21 2228 2358 [email protected]

Peter Wesp Japan Automotive Leader, Transaction Advisory Services +49 6196 996 27282 [email protected]

Anil Valsan Global Automotive and Transportation Lead Analyst +44 20 7951 6879 [email protected]

Regan Grant Global Automotive and Transportation Marketing Leader +1 313 628 8974 [email protected]

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