2Q 2014 (April–June) - EY · 2Q 2014 (April–June) Automotive transactions and trends Global...

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2Q 2014 (April–June) Automotive transactions and trends Global automotive mergers and acquisitions review The first half of 2014 has been very positive for the global automotive sector with strong growth, particularly in developed markets and, as expected, companies announcing big-ticket M&A transactions. 2Q14 deal values were the third highest in the last eight quarters led by the suppliers and leasing sub-segments primarily in the Americas region. Private Equity (PE) funds continue to capitalize on the bull run in the stock markets to exit their automotive investments at substantial profits. Simultaneously, new PE players find value in acquiring stakes at current valuations, which underline the growth potential of the automotive sector. Interestingly, the Original Equipment Manufacturers (OEMs) sub-segment witnessed medium-sized strategic divestment deals in the Commercial Vehicles (CV) space in Turkey and China. Also noteworthy is the fleet and leasing sub-segment that has witnessed big-ticket Venture Capital (VC)/PE investments in innovative technology-based mobility companies, driving high valuations. Looking ahead, transactions in the automotive sector should be driven by positive economic sentiment, enhanced credit availability, as well as increased confidence in the number and quality of opportunities and likelihood of deals closing. Robust global automotive deal activity in 2Q14 Mark Short Global Automotive Industry Leader Transaction Advisory Services Top target markets by deal values in 2Q14 <US$1b <US$1–5b <US$5b 67% 8% 11% Market Value (US$b) Volume USA 8.8 49 China 1.4 24 Brazil 1.0 3 Germany 0.7 15 Turkey 0.4 2 India 0.2 7 UK 0.1 14 Japan 0.1 13 Others 0.3 63 Total 13.0 190 Source: Dealogic 10% Decline in deal volumes y-o-y, indicating a rise in average deal size y-o-y 67% Share of parts and equipment manufacturers in deal values, highest in last two years 10X Increase in fleet and leasing segment deal values y-o-y and five times increase q-o-q 73% Share of US and China (top acquirer countries) in deal values 71% Completion rate by deal volumes within the same quarter 122% Growth in deal values y-o-y, however, it declined 45% q-o-q 2Q14 deal highlights

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Page 1: 2Q 2014 (April–June) - EY · 2Q 2014 (April–June) Automotive transactions and trends Global automotive mergers and acquisitions review The first half of 2014 has been very positive

2Q 2014 (April–June)

Automotive transactions and trendsGlobal automotive mergers and acquisitions review

The first half of 2014 has been very positive for the global automotive sector with strong growth, particularly in developed markets and, as expected, companies announcing big-ticket M&A transactions. 2Q14 deal values were the third highest in the last eight quarters led by the suppliers and leasing sub-segments primarily in the Americas region. Private Equity (PE) funds continue to capitalize on the bull run in the stock markets to exit their automotive investments at substantial profits. Simultaneously, new PE players find value in acquiring stakes at current valuations, which underline the growth potential of the automotive sector. Interestingly, the Original Equipment Manufacturers (OEMs) sub-segment witnessed medium-sized strategic divestment deals in the Commercial Vehicles (CV) space in Turkey and China. Also noteworthy is the fleet and leasing sub-segment that has witnessed big-ticket Venture Capital (VC)/PE investments in innovative technology-based mobility companies, driving high valuations.

Looking ahead, transactions in the automotive sector should be driven by positive economic sentiment, enhanced credit availability, as well as increased confidence in the number and quality of opportunities and likelihood of deals closing.

Robust global automotive deal activity in 2Q14

Mark ShortGlobal Automotive Industry LeaderTransaction Advisory Services

Top target markets by deal values in 2Q14

<US$1b <US$1–5b <US$5b

67%

8%

11%

Market Value (US$b)

Volume

USA 8.8 49China 1.4 24Brazil 1.0 3Germany 0.7 15Turkey 0.4 2India 0.2 7UK 0.1 14Japan 0.1 13Others 0.3 63Total 13.0 190

Source: Dealogic

10%Decline in deal volumes y-o-y,

indicating a rise in average deal size y-o-y

67%Share of parts and equipment

manufacturers in deal values, highest in last two years

10XIncrease in fleet and leasing segment

deal values y-o-y and five times increase q-o-q

73%Share of US and China (top acquirer

countries) in deal values

71%Completion rate by deal volumes

within the same quarter

122%Growth in deal values y-o-y, however,

it declined 45% q-o-q

2Q14 deal highlights

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2 | Automotive transactions and trends 2Q 2014

Car and truck manufacturers (OEMs)

OEMs are expected to continue to adopt a cautious approach toward deal making, with a focus on restructuring of operations, generating synergy from past acquisitions, expanding the geographic footprint and gaining access to new technologies.

Outlook |

2Q14 analysis

• OEM deal values exhibited a marginal decline of 5% y-o-y and a steep decline of 94% q-o-q (due to effect of VW/Scania and Fiat/Chrysler deals in 1Q14). Meanwhile, deal volumes declined 15% y-o-y and 35% q-o-q.

• Turkey, China and Russia were the largest acquirer countries with a 90% share by deal value — driven by medium-sized strategic divestments in the commercial vehicle space.

• Firms with diversified business interests have acquired these divested divisions to gain access to defense vehicle manufacturing and energy efficient vehicle manufacturing businesses. Source: Dealogic

9,554

2,866 3,631

934 1,705

969

14,868

885

3430 28 26

16 16

34

22

3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

Deal value (US$m) No. of deals

70%Contribution of top two deals in total deal value in the past year (3Q13–2Q14)

93%Completion percent of dealsannounced in the past year (3Q13–2Q14) based on deal values as compared to82% by deal volumes

OEM deal highlights

Transaction activity in this segment is expected to be driven by strategic exits by PE firms amid strong stock market performance and suppliers’ focus on increasing global presence, liquidation of non-strategic business divisions and gaining access to new safety and electronics technologies.

Outlook |

Parts and equipment manufacturers (suppliers)2Q14 analysis

• Supplier deal values more than doubled y-o-y and increased by 23% q-o-q, driven by strategic secondary PE buyouts/exits in the Americas region. US, China and France were the largest acquirer countries with a 95% share in deal values, while the US, Brazil and China were the largest target nations with a 90% share.

• Blackstone’s acquisition of Gates Global for US$5.4b, from Onex Corp and Canada Pension Plan Investment Board, was the largest PE buyout of an industrial company in the last four years.

• Michelin acquired Sascar Participações SA from the Latin American PE firm, GP Investments, to expand its presence in the professional truck fleets telematics market.

Source: Dealogic

3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

Deal value (US$m) No. of deals

1,776

5,013

2,093

4,216

2,958

4,544

7,045

8,681

91

109

8492

82 83

108

75

67%Share in deal values in 2Q14, second highest in last eight quarters

35%Completion percent of deals announced in the past year (3Q13–2Q14) based on deal values as compared to 85% by deal volumes

Supplier deal highlights

Car and truck sales and repair (retail and aftermarket)

Companies need to enhance distribution networks in emerging markets, improve customer experience through digital marketing solutions and provide integrated connectivity services. In addition, PE investments are expected to drive retail and aftermarket segment deals.

Outlook |

2Q14 analysis

• Retail and aftermarket deal values were flat y-o-y, while declining by 68% q-o-q. As compared to this, deal volumes declined by 10% y-o-y, indicating a small increase in average deal size.

• UK, Japan and Malaysia were the largest target nations, accounting for two-thirds of deal values.

• This segment witnessed certain strategic PE investments/divestments for funding expansion plans and, in some cases, paving the way for IPOs.

Source: Dealogic

3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

Deal value (US$m) No. of deals

3,729

516 973

407

1,655 1,623 1,262

405

78 81

68 72 72 68 65 65 73%Share of Asia-Pacificregion in deal values in 1H14 (1Q14–2Q14), followed by 15% for EMEIA

92%Completion percent of dealsannounced in the past year (3Q13–2Q14)based on deal values as compared to90% by deal volumes

Retail and aftermarket deal highlights

Automotive sub-sector transactions analysis and outlook

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3Automotive transactions and trends 2Q 2014 |

EY’s Capital Agenda — key considerations and implications

The CapitalAgenda

Raisin

g Investing

Preserving Optim

izing

• 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

• Perform increased stress testing of investment business cases given the uncertain volume levels

• Select acquisition of market share, technologies or geographic coverage

• Perform mobility business readiness assessment and integration methodology, as well as revenue synergy analysis

• 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

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

• Enhance business modelling and cash forecasting systems and capabilities

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

Data source and industry scopeThe analysis and perspectives in Automotive transactions and trends are based on global financial releases and Dealogic data. Automotive covers vehicle (car and truck) manufacturers, parts and equipment manufacturers, retail and distribution (vehicles and parts), and fleet and leasing (fleet management, rental, car sharing) companies. Deal activity and valuations may fluctuate slightly based on the final date of data collection and analysis by EY.

80%Share of Americas region in deal values in 1H14 (1Q14–2Q14), followed by 13% for EMEIA

91%Completion percent of deals announced in the past year (3Q13–2Q14) based on deal values as compared to 88% by deal volumes

Fleet and leasing deal highlights

Fleet and leasing

Transaction activity in this segment is expected to be driven by capital requirements of players to access new geographies and expand product offerings/solutions. Government and private sector initiatives to provide integrated personal mobility solutions are expected to drive consumer adoption and entry of new players.

Outlook |

2Q14 analysis

• Fleet and leasing segment deal values grew by nine times y-o-y and four times q-o-q. As compared to this, deal volumes increased by 26% y-o-y, indicating a sharp increase in average deal size.

• US was the largest target nation, accounting for 95% of deal values.

• Element Financial completed a 100% acquisition of PHH Arval for US$1.4b to create a leading position in the North American fleet management market.

• This quarter witnessed big-ticket VC/PE investments of US$1.2b and US$250m in Uber Technologies and Lyft Inc, respectively. Uber’s valuations rose to an unprecedented US$18b, underlining investors’ confidence in companies riding the wave of the new collaboration economy.

Source: Dealogic

3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14

Deal value (US$m) No. of deals

4,592

222 635

295 465 228 597

3,036

26 920

23 27 24 13 29

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How EY’s Global Automotive Center can help your businessThe global recession reset the automotive sector landscape. As the sector recovers, automotive companies across the value chain must focus on profitable and sustainable growth, financial and operational stability, investments in new technologies and seizing opportunities in high-growth markets. If you lead an automotive business, you need to anticipate trends, identify implications and make informed decisions that support your business goals. Our Global Automotive Center enables our worldwide network of more than 7,000 sector-focused assurance, tax, transaction and advisory professionals to share powerful insights and deep sector knowledge with businesses like yours. These insights, combined with our technical experience in every major global automotive market, will help you to accelerate strategies and improve performance. Whichever segment of the automotive sector you are in — from component suppliers to commercial or light vehicle manufacturers or retailers — we can provide the insights you need to succeed.

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EY | Assurance | Tax | Transactions | AdvisoryFor a conversation about your capital strategy, please contact us:Randall MillerGlobal Automotive Industry Leader +1 313 628 8642 [email protected]

Mark ShortGlobal Automotive Industry Leader Transaction Advisory Services +1 313 628 8760 [email protected]

Jim CarterAmericas Automotive Industry Leader Transaction Advisory Services +1 313 628 8690 [email protected]

Stephan HellmannPartner, Transaction Advisory Services + 49 6196 996 25030 [email protected]

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

Peter WespPartner, Transaction Advisory Services +49 6196 996 27282 [email protected]

Anil ValsanGlobal Automotive Lead Analyst +44 20 7951 6879 [email protected]

Regan GrantGlobal Automotive Marketing Leader +1 313 628 8974 [email protected]

AcknowledgementsSpecial thanks to EY Knowledge automotive analysts Abhishek Gupta and Bhaskar Mazumdar for the analysis and compilation of this study.