Mergers and acquisition (M&A) activity in the automotive sector is expected to reach a 5-year record high in 2007 with an estimate of 508 global deals forecasted (see Table 1). The deals are becoming increasingly complex and far-reaching into every corner of the globe. For automotive manufacturers, avoiding M&A disconnect in this deal environment requires a consistent approach to the deal's execution and integration. In the following interview, Andy Wilson, a partner and automotive sector leader in the M&A Transaction Services practice of Deloitte & Touche LLP (USA), discusses the merger and acquisition trends and outlook for the automotive sector and what drives a successful deal. Q. What has been the trend for merger and acquisition (M&A) activity in the automotive sector over the last year? How does this compare with previous years?
Andy Wilson: Globally, automotive deal volume is up significantly in 2007. Significant cross-border activity continues to occur both relative to the North American Free Trade Agreement (NAFTA) market place and throughout the globe. In North America, much of the restructuring that started in 2004/2005 has become more active in the last 18 months. A significant number of assets from major Tier One suppliers that have long been on the block are being sold primarily to other automotive companies that are looking to round out their product offerings or technology portfolio. The overall decline in deal volume since mid-2007 has affected the outlook for 2007 total automotive deals, but we see continuing deal flow from overseas and U.S. based strategic buyers for the balance of 2007 and into 2008. Private equity funds have provided the fuel for a number of the largest North American restructuring and buyouts and, while that portion of the buyer community has been hit hardest by the credit crunch, they hold large amounts of capital and will continue to seek investment opportunities. Q. What is the deal outlook for the future? And, can you describe some of the driving factors behind automotive M&A?
Andy Wilson: The outlook is positive. On a global basis, the number of cross-border deals appears to be increasing in the past 18 months and we can expect this trend to continue over the next 18 months. The expansion outside of their home markets of some of the major automotive companies from traditional low-cost countries, such as China and India, has brought in new capital and a fresh look at certain sectors of the automotive market. With the declining value of the U.S. dollar globally and some of the significant labor restructuring that is occurring, automotive assets in the U.S. and the enormous U.S. consumer market are becoming increasingly attractive to foreign players. The focus of many buyers on expansion of their core competencies and divestiture of non-core businesses they have acquired or developed organically over the years has provided a higher level of available assets in the marketplace. More and more product lines, plants and middle-market supplier companies continue to become available as supplier and OEM’s focus their businesses. With significant money available in the hedge fund/private equity area in the past two years, more deals of all sizes have been getting done globally. While we may see some slowing temporarily due to credit conditions, the amount of global capital for doing deals from private equity, hedge funds, sovereign funds, not to mention strong industry players in every market looking for the "right fit" assets, will continue to match buyers with the increasing number of available assets. Q. Deals are getting more complex and global. How can automotive companies successfully manage this?
Andy Wilson: Yes, deals are certainly becoming more complex. In the automotive sector, the number one factor for success is acquiring for the right reasons. Too often in the past, acquisitions were done to develop bulk and volume. The best acquirers have been those executing strategic growth, whether buying specific products or technology to fill a void in their portfolio or acquiring low-cost production in areas where they had none. Buying strategically implies that you have an M&A strategy. Corporate development departments have to manage the various constituencies and individual agendas that may exist within their companies to develop a strategy and, most importantly, keep the execution of that strategy on track. A key feature of most automotive deals, even if relatively small in size, is the global web of production, supply and customers. Dealing with the complexity of global deal execution is the No. 1 challenge. Corporate development is responsible for continuity, but it’s the pertinent business units that are responsible for how well the theory gets translated into practice — ensuring that the entity being acquired is absorbed into the organization smoothly and that the end result functions properly. Managing consistency in approach to the deal’s execution and integration, whether in Sao Paulo, Shanghai or Sandusky, is critical to deal success and requires effective interaction between corporate development and line managers. We discuss ways to achieve this in our article, “Avoiding M&A Disconnect.” Learn more |
