August 15, 2016
M&A in the global automotive suppliers sector are occurring at an unprecedented level in 2015. However, in our view, the M&A explosion in the automotive supplier sector is just beginning to heat up. Perhaps the primary catalyst for more activity will be the efforts among many automakers to gain efficiency, improve margins, and increase scale by implementing more global architectures and platforms for their vehicle designs that can be used in any market around the world with minor modifications. We strongly believe that the M&A boom in the automotive supplier industry still has room to grow, and there are plenty of opportunities for significant returns on investment.
Executive Summary – A brief overview of some of the most pressing issues affecting the global automotive industry
Overall, the global automotive industry is in better shape than it was 5 years ago, especially in the U.S., where profits and sales have recovered following the recent economic crisis, and in China, where growth remains strong.
This progress will likely continue. By 2020, global profits for automotive OEMs are expected to rise by almost 50%. The new profits will come mainly from growth in emerging markets and, to a lesser extent, North America, Europe, Japan, and South Korea will be stagnant in terms of profit growth.
Growth in automotive industry is forecast at merely 2% in 2015, while 2016 and 2017 are expected to show a return to a healthier level of 5% and 5% as markets stabilize. Growth in North America and Europe is accelerating but it is not enough to offset the deepening issues facing emerging markets.
With China’s slowdown: forecasted cars sales growth in the country has scotching annually 10% from 2010-2015, Asia auto supplier index return is underperforming relative to the global market. In both Europe and North America, auto supplier industries as well as commercial vehicle sales, market return has been relatively similar to that of the global S&P 500. (See figure “Global Autopart Supplier Index”)
There is also a massive safety recalls issue in the industry which has cast a shadow over automakers, calling into question the reliability and trustworthiness of the entire industry. The recent diesel scandal continues to unfold, resulting in changes in senior levels of management; and possible implications for big OEM group for their powertrain strategy in future.
As a result, when looking at commercial vehicle companies’ average trading multiple (EV/EBITDA), the figure is relatively higher that of OEMs group; the gap between commercial and OEM market becomes larger since December 2015. (See figure “Supplier LTM Trading Multiples”)
Due to a lack of confidence in the global business environment, the percentage of automotive companies planning to pursue acquisitions within a year fell to 19%. The level of desire to complete an acquisition is lower than we would have expected. Tightness in the liquidity in the equity and debt markets in automotive are likely factors impacting desire to do M&A.
However, more M&A is expected in the future. The negative trend that exists currently is not necessarily indicative of the future trend. The strong auto markets in the U.S. and China could yield M&A activity in the coming months. Meanwhile Germany, South Korea and India have been recovering from their low performance industry. This positive outlook on the global market will show green light for strong records of M&A in the near future.
Click here to read the rest of the MAWW Automotive Industry Report July 2016.
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Alan Montgomery, Former Client
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Nigel Parsons, Former Client
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James Caan, Investor
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Marten Nielson, Former Client
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Paul Duckworth, Former Client
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Peter Bennett, Former Client
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James Averdieck, Gü, Former Client
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Jon Parslow, Former Client
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Henry Braham, Former Client
Bluebox have a professional, dynamic and experienced team that is greatly assisting me with my focus on my exit within the next 24 months. Their structured approach is very refreshing and their ‘Blue Diamond’ programme is adding immense value.
Matt Evans, Former Client
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Victor Lewis, Former client
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Steven Davies, Former Client
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