Automotive transactions and trends 2016

Transcription

1 Automotive transactions and trends 2016 Global automotive mergers and acquisitions review Produced by Global Markets EY Knowledge

2 Contents Executive summary 1 Analysis by deal sizes Cross-border deals in Mark Short EY Global Automotive and Transportation Industry Leader, Transaction Advisory Services M&A plays a key, strategic role in the reinvention of the automotive industry Transaction drivers for the automotive value chain Automotive sub-sector transaction trends and drivers Investing in mobility Capital and M&A outlook EY s Capital Agenda key considerations and implications The global automotive industry is in a rapid state of change. An evolution of products and processes, people and places, software and services. The industry is likely to experience more change in the next decade than it has in the previous 50 years. Digitalization and innovation will drive this change. So too will relationships, whether they be with consumers or strategic partners. Success in this new age of automotive will rely heavily on the ability to adapt and adjust, quickly. To access the products, services and skillsets of tomorrow s automotive industry today. While organic growth remains important, automotive companies continue to utilize M&A as a strategic tool to access the critical talent, intellectual property and innovation necessary to prosper in the reshaping automotive landscape. Smaller, smarter deals are likely to drive transaction activities. Traditional deal challenges remain, but many others have emerged in this new environment. As sector convergence increases, the integration of assets outside a company s traditional core is far less straightforward, requiring customercentric solutions. Additionally, the rise of nationalist politics adds a new layer of complexity to cross-border investment strategies and deal assessments. Despite the challenges, automotive companies fully understand that improving their competitive edge requires a sharp focus on acquiring innovative assets that best position them for success in the new automotive ecosystem.

3 Executive summary Disruptive trends continued to drive M&A in the automotive sector during With the industry transformation in mind, automotive companies took a cautious approach toward dealmaking the past 12 months, focusing on smaller and smart targets. 4.0% 0.9% YOY* increase in deal values (US$61.6 billion) Marginal YOY* increase in deal volumes (885 deals) 77.5% Share of deals with values up to US$100m The average deal size stood at US$184.3 million in FY16. *Year-over-Year (YOY) Sub-sector insights Regional insights 65.0% Share of component suppliers YOY decline in retail in the deal values in FY16 deal values Source: Dealogic ~26.1% Top target nations (volume) China 19.7% US 19.1% UK 10.3% Top acquiring nations (volume) China 19.9% US 19.6% UK 8.4% Digital disruption and the blurring of sector lines have automotive companies planning for multiple possible futures M&A plays a critical role as an important, transformative option for expanding on the core products and services of today and accelerating the emerging businesses of tomorrow. Automotive transactions and trends

4 Executive summary Despite strong deal fundamentals and a healthy deal environment, the rate of automotive transactions moderated in 2016, likely caused by Brexit, the US presidential election and weakening economic growth in China, among other factors. Deal completion scenario* in the last two years 89.7% Overall completion rate for deals announced in last nine quarters 97.6% 97.8% 96.9% 90.5% 83.0% 82.1% 77.2% 80.6% 75.2% 72.8% 94.9% 93.9% 88.8% 78.3% 73.7% 76.3% 71.6% 70.1% 77.1% Average deals closed in the announced quarter, during 4Q14 to 4Q16 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Deals completed (%) Deals completed in the same quarter (%) Continued confidence in the M&A market** 58% of automotive executives expect to pursue acquisitions in the next 12 months 31% of automotive executives expect the M&A market to improve in next 12 months, while an additional 63% expect a stable M&A market 62% of automotive executives have a positive level of confidence with regard to the number of acquisition opportunities The pace of investment in mobility, autonomous driving technologies and connected infotainment is accelerating. With the profit potential and growth opportunities within the new mobility landscape becoming more clear, both automotive and non-automotive companies are leveraging M&A or strategic partnerships to advance their market positioning, as evidenced by General Motors US$500 million Lyft investment and the US$8 billion Samsung-Harman international deal. *Based on deal volumes. ** Insights from the latest Capital Confidence Barometer. Source: Dealogic and Capital Confidence Barometer 2 Automotive transactions and trends 2016

5 Analysis by deal sizes Middle-market transactions (those valued up to US$250m) continued to dominate acquisition plans. The number of upper-middle-market deals (those valued above US$250m and under US$1b) increased. Deal volumes split by deal size, 4Q13 4Q16 Deal drivers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 9% 9% 83% 13% 8% 79% 9% 2% 89% 12% 7% 80% 8% 6% 87% 14% 10% 75% 10% 8% 82% 9% 15% 76% 11% 12% 77% 16% 7% 78% 5% 13% 82% 8% 16% 76% 10% 14% 75% Access to new customers, data Acquiring talent Access new technologies and intellectual property Move into new geographical markets 0% 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Transaction values in US$ million < >250 *Calculation based on deals with disclosed values. Source: Dealogic Tech companies such as Microsoft, Baidu, Alibaba, Google, IBM, Apple and CISCO, among others, are increasing collaboration with automotive players to develop next-generation technologies. Automotive transactions and trends

6 Cross-border deals in 2016 Cross-border acquisitions provide companies access to new markets, new business segments and new customers. However, these activities may be temporarily delayed due to recent events like the outcome of the US presidential election, Brexit and China s new regulations on outbound foreign investment. 56% UK Canada (78) 74% 74% 19% 22% 24% (95) 4% 27% 40% 19% 61% US (214) 21% France 13% (72) 13% Germany (73) 33% 75% China 12% (200) 13% 53% Japan 7% (68) 40% 75% 75% 86% Domestic deals Outbound deals Inbound deals *The number in brackets represents the total number 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. China is playing an increasing role in Asia-Pacific M&A activity, with their volume increasing from 120 deals in FY14 to 200 deals in FY16. China s outbound M&A activity surged in 2015 and 2016 with an increase in pace and deal size. In addition, some of the largest domestic deals within Asia-Pacific during FY16 were announced by China, followed by Australia and Japan. 4 Automotive transactions and trends 2016

7 Cross-border deals in 2016 Domestic and cross-border deals both remained strong during FY16. While smaller deals dominated the M&A landscape by volume, deals valued above US$250 million contributed more than 75% share to the total deal value for the same period. Deal volume split by deal type*, FY12 16 Number of deals by value category*, FY16 100% 90% 80% 70% 60% % 71% 77% 72% 74% % 40% 30% 20% 10% 27% 29% 23% 28% 26% % Cross-border *Represent deals with disclosed values. Source: Dealogic Domestic Domestic < Bubble represents cumulative deal value in US$ billion *Deal value category in US$ million Cross-border >250 Key drivers for cross-border deals Leverage cost base/economies of scale Access strategic proprietary assets and low labor cost Gradual easing of FDI and related regulatory processes Growing domestic demand for global products in emerging markets 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. Automotive transactions and trends

8 Transaction drivers for the automotive value chain Restructuring of underperforming operations Optimizing costs and achieving operational efficiencies Accessing emergent technologies and innovation, such as self-driving cars and light-weighting 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 Vehicle manufacturers Suppliers Key M&A drivers in 2016 Fleet and rental Retail and aftermarket 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 6 Automotive transactions and trends 2016

9 Automotive sub-sector transaction trends and drivers

10 Vehicle manufacturers (OEMs) transactions The growing number of autonomous driving, connectivity and powertrain technologies acquisitions highlights the importance of leadership positioning among passenger vehicle manufacturers in the burgeoning mobility landscape. Vehicle manufacturers Suppliers Key M&A drivers in 1H16 Fleet and rental Retail and aftermarket 2016 deals were driven by autonomous driving, connectivity and alternate powertrain technologies. OEMs continue to accelerate the pace of their engagement with tech companies, both large and small. Deal values increased by ~28% YOY to reach US$12.3 billion Deal volumes decline by 16% YOY China, Japan and US were the largest acquirer countries, with a combined 91% share in deal value and 56% share in deal volume M&A strategy outlook Deal value (US$m) 14,868 No. of deals Operational restructuring to unlock capital for expansion , ,871 3,370 1,491 3,901 1,903 2,269 2,296 1,237 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 *The Porsche-Scania deal contributed more than 60% to the total deal value during 1Q14. Source: Dealogic Deal indicators 68% Share of the top five deals in FY16 in total deal values 27 76% Completion rate of deals announced in 2H16 based on deal volumes % Completion rate of deals announced in 4Q16 based on deal volumes Access to future mobility solutions/services, autonomous driving and connectivity technologies Energy/powertrain, parking and rentals/ marketplaces 8 Automotive transactions and trends 2016

11 Parts and equipment (supplier) transactions With Samsung s acquisition of Harman, a new market entrant booked the largest deal in the supplier space. Vehicle manufacturers Suppliers Key M&A drivers in 1H16 Fleet and rental Retail and aftermarket 2016 deals were driven by selfdriving revolution, control of multipart modules and interior business consolidation Deal values declined by 4% YOY to US$31.8 billion, while deal volumes increased by 3% YOY China, the US and Japan emerged as the largest acquirer countries, with 83% share in deal value China, the US and Germany were the largest target nations, accounting for more than 53% share by deal volume M&A strategy outlook Deal value (US$m) No. of deals 16,600 15,255 15, , ,771 6,976 7,236 4,609 5,695 5,182 4,397 4,478 1,606 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 To keep up with advances in selfdriving cars, infotainment and powertrains Wave of consolidation and access to the allimportant interface between driver and vehicle Source: Dealogic Deal indicators 45% Share of the top five deals in FY16 in total deal values 72% Completion rate of deals announced in 2H16 based on deal volumes 63% Completion rate of deals announced in 4Q16 based on deal volumes Gaining access to new safety and electronics technologies Automotive transactions and trends

12 Retail and aftermarket transactions Consolidation was an ongoing theme within the retail and aftermarket sub-sector in The parts and service retail business, while not glamorous, has tremendous upside potential, especially when considering continued vehicle sales growth globally. Vehicle manufacturers Suppliers Key M&A drivers in 1H16 Fleet and rental Retail and aftermarket 2016 deals were driven by enabling integrated service offering and expansion of network Deal values declined by 26% YOY in FY16. However, deal volume increased by 5% YOY China, the UK and the US emerged as the largest acquirer nations, with a share of 64% in deal value The UK, the US and Canada were the largest target nations, accounting for more than 53% share by deal volume M&A strategy outlook Deal value (US$m) ,109 No. of deals Enabling integrated service offerings 1,623 1, , ,109 2,998 1, , Expansion of distribution networks 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Source: Dealogic Deal indicators 54% Share of the top five deals in FY16 in total deal values 88% Completion rate of deals announced in 2H16 based on deal volumes 83% Completion rate of deals announced in 4Q16 based on deal volumes Expand presence in new geographies or related business lines 10 Automotive transactions and trends 2016

13 Fleet and rental transactions Transaction activities were moderate during However, with the expansion of mobility services such as ride-hailing, fleet and rental businesses could be strategic targets for new and existing transportation providers in the future. Vehicle manufacturers Suppliers Key M&A drivers in 1H16 Fleet and rental Retail and aftermarket FY16 deal activity focused on partnerships between OEMs and new entrants to address the changing consumer preferences around shared mobility Deal value (US$m) 61,523 No. of deals Deal values declined by 72%, whereas deal volumes declined by 3% YOY, indicating a steep fall in the average deal values China, the US and France were the largest acquirer nations, contributing 62% share in deal value The US, the UK and France were the largest target nations, contributing more than 38% share by deal volume Enabling integrated mobility products and services M&A strategy outlook , , ,276 2,324 1, Product and services portfolio expansion for urban and business customers 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 Source: Dealogic Deal indicators 54% Share of the top five deals in FY16 in total deal values 90% Completion rate of deals announced in 2H16 based on deal volumes 83% Completion rate of deals announced in 4Q16 based on deal volumes PE investments for geographic expansion and improving operational efficiency Automotive transactions and trends

14 Investing in mobility Automotive companies are seeking leadership positions in the fast-evolving transportation landscape; M&A, strategic partnerships, collaboration complement in-house initiatives. Active acquirers: OEMs, suppliers and technology companies Top target nations: US, China, Germany Audi, BMW (venture arm BMW i ventures), and Daimler have the highest number of acquisitions and collaborations among traditional automotive companies. Samsung, Siemens and Didi are leading nonautomotive investors in mobility. Advancements in autonomous driving, connected vehicle, infotainment and GPS/mapping solutions are driving supplier investment activities. Recent high-value deals: Samsung-Harman (US$8 billion), Siemens-Mentor Graphics (US$4.5 billion) and the Uber-Otto acquisition (US$680 million). OEMs and suppliers have been actively increasing investments in technology start-ups, particularly in the US, where OEMs are in an ongoing battle (among themselves and other tech giants Apple, Google, etc.) for new talent, IP and breakthrough technologies. Germany is also an active region, with Daimler, Volkswagen, BMW, as well as large tier-1 suppliers, seeking innovation and talent. China has a growing presence in mobility M&A activities, including the blockbuster Uber-Didi merger (resulting in a ride-hailing service valued at US$35 billion). Since 2012, more than US$22 billion in deals have been finalized in the automotivemobility space Rapid growth in autonomous and connected vehicle technologies has yielded investments of US$14 billion in the last five years When considering deals by region, the US has been the most active market, with deal values reaching over US$15 billion* The US had the highest number of deals, 27, with a lot of American automotive players investing in start-ups working in the autonomous and connected tech space *US$8 billion attributed to Samsung-Harman deal 12 Automotive transactions and trends 2016

15 Capital and M&A outlook Insights from the Automotive Capital Confidence Barometer Digital and innovation drive M&A market Global economic confidence challenged by volatility in currencies, commodities and other capital markets Digitalization and sector convergence are likely prominent boardroom focus points Acquiring talents and access to new customers, data fuel cross-sector M&A M&A strategy focused on cross-border acquisitions % 34% 55% 42% Respondents view the economy as either stable or modestly improving Respondents indicating the impact of digital technology on business model as most prominent boardroom discussion point Respondents cited acquiring talent as the main driver for acquisition outside of automotive sector Respondents planning acquisitions outside their immediate region 34% 49% 31% 58% Respondents cited geopolitical instability as the greatest business risk Respondents indicating sector convergence/ increased competition from other sectors as 2nd most prominent boardroom discussion point Respondents cited access to new customers, details and databases as drivers for acquisition outside of automotive sector Respondents planning domestic or intra-regional acquisitions in the next 12 months Automotive transactions and trends

16 EY s Capital Agenda key considerations and implications Do you have the right capital structure to meet your strategic priorities? 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 What is the best way for your company to grow and is it aligned to core business? 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 Raising Investing How can you improve the performance of your assets? Balance cost reduction with sustainable process change Preserving The Capital Agenda Optimizing What steps can you take to maximize your portfolio s performance? Improve information flows to support enhanced visibility of liquidity and cash risks Institutionalize and integrate working capital initiatives Divest carefully implement risk management process around divestiture cycle to maximize cash benefits Benchmark leading-class performance and pursue targeted change 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 14 Automotive transactions and trends 2016

17 For a conversation about your capital strategy, please contact us: Randall Miller Global Automotive and Transportation Industry Leader randall.miller@ey.com Mark Short Global Automotive and Transportation Industry Leader, Transaction Advisory Services mark.short@ey.com Jim Carter Americas Automotive and Transportation Industry Leader, Transaction Advisory Services jim.carter@ey.com Constantin Gall GSA Automotive and Transportation Leader, Transaction Advisory Services constantin.gall@de.ey.com Tony Tsang Far East and Oceania Automotive Industry Leader, Transaction Advisory Services tony.tsang@cn.ey.com Peter Wesp Japan Automotive Leader, Transaction Advisory Services peter.wesp@jp.ey.com Anil Valsan Global Automotive and Transportation Lead Analyst avalsan@uk.ey.com Regan Grant Global Automotive and Transportation Marketing Leader regan.grant@ey.com EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. EYG no Gbl BMC Agency GA 0665_09923 ED None. In line with EY s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com Acknowledgements Special thanks to EY Knowledge automotive analysts Joe Sebestyen and Sudarshan Vyas for the analysis and compilation of this study