Capital Confidence Barometer

Transcription

1 May 2016 ey.com/automotive 13th edition Automotive Capital Confidence Barometer Acquiring innovation and forging alliances are driving the automotive transaction environment

2 Global Automotive sector contacts Pip McCrostie Global Vice Chair Mark Short Global Automotive and Transportation Industry Leader Steve Krouskos Deputy Global Vice Chair Barry Perkins Global Lead Researcher +44 (0) Americas Richard M. Jeanneret Americas Leader Asia-Pacific John Hope Asia-Pacific Leader Brad Hehl Central Region Automotive and Transportation Industry Leader Stephan Hellmann GSA Automotive Leader Jim Carter Americas Automotive Industry Leader Randy Miller Global Automotive and Transportation Leader Contacts For a conversation about your capital strategy, please contact us: Acquiring innovation and forging alliances are driving the automotive transaction environment Our latest Capital Confidence Barometer continues to find a healthy appetite for acquisitions within the automotive sector, with more than half of survey respondents expecting to pursue acquisitions in the next 12 months. Automotive companies have accepted the reality of an extended low-growth global economic environment the vast majority of our respondents expect only modest or stable economic growth. Against that backdrop, our respondents indicate continued optimism about dealmaking. A shift to more stable deal characteristics is a strong indication of the sustainability of the current dealmarket. This stability has contributed to companies becoming more comfortable with doing larger deals, a trend demonstrated by the increasing deal intentions toward the upper-middle-market range. Larger deals those in excess of US$250m make up nearly 60% of planned transactions in the next 12 months, according to our automotive executives. Changes in the way companies interact with customers increasingly through digital channels, the rapid acceleration of vehicle technologies and the growth of alternative mobility solutions, such as car- and ride-sharing has automotive companies planning for multiple possible futures. Acquisitions continue to be an important option to transforming business and achieving growth. However, M&A is not the only means to acquire innovation. Alliances are becoming an attractive option to securing access to cutting-edge technologies, enhancing R&D capabilities and managing cost and risk. One-third of automotive executives tell us they intend to enter alliances to accelerate both top- and bottom-line growth and generate monetizing opportunities with underutilized assets. Automotive companies that successfully balance their M&A plans with strategic and innovative alliances will be wellpositioned to respond to the challenges of the marketplace and win in the evolving mobility ecosystem. Europe, Middle East, India and Africa (EMEIA) Andrea Guerzoni EMEIA Leader andrea.guerzoni@it.ey.com Japan Kenneth G. Smith Japan Leader kenneth.smith@jp.ey.com II Mark Short Global Automotive and Transportation Industry Leader, Capital CapitalConfidence ConfidenceBarometer Barometer 1

3 Macroeconomic environment and corporate strategy Automotive companies have accepted the reality of prolonged, low-growth economic environment and are looking to identify new avenues for growth and to protect earnings. Acquisitions will continue to be part of the growth road map. Heightened global and regional political instability, especially in the Middle East, the Korean Peninsula and the South China Sea, are seen as key risks to many businesses M M M M In addition, volatility in commodity and currency markets, which began in earnest in 2014, is now entering its third year. While the impact has been positive in certain sectors and geographies, prolonged volatility may hamper companies ability to plan over the short to medium term. of automotive executives expect GDP growth to be the same as in % of automotive executives view the global economy as stable () or improving (34%) While growth remains at the forefront for automotive companies, in the present climate there is an increased focus on improving risk management, making better use of digital technology and analytics, as well as improving existing business processes. 2 53% of automotive companies will focus on improving risk management to drive growth in the next 12 months and an additional 48% of automotive companies will focus on making better use of digital technology and analytics to drive growth in the next 12 months M of automotive executives view increasing global and regional political instability as the greatest economic risk to their business for the next 12 months and an additional 29% of automotive executives view increasing volatility in commodities and currencies as the greatest economic risk to their business for the next 12 months Capital Confidence Barometer 3

4 Alliances: a lower risk route to growth in a complex environment A growing number of automotive companies are evaluating or implementing new business models, in search of new sources of revenue and earnings amid a fast-changing mobility ecosystem. Alliances in addition to and sometimes in place of acquisitions are becoming more attractive as growth vehicles. Thirty-three percent of automotive executives in this year s Barometer are planning to enter alliances with other companies, including competitors, to help create value from underutilized assets and take advantage of the expertise and reach of others. of automotive executives plan to enter alliances with other companies or competitors to help create a value from underutilized assets Are you planning to enter alliances with other companies or competitors to help create value from underutilized assets? Yes If you answered yes, what was the primary reason? To monetize both intangible and tangible assets 73% To monetize tangible assets (including production facilities, land and buildings, etc.) To monetize intangible assets (including data, brands, intellectual property, etc.) 19% 8% Preparing for multiple futures Automotive companies are also looking to alliances as a safer way to bolster their own research and development processes. As sectors converge rapidly, partnerships with companies in other industries, especially technology, may be a safer way to conduct R&D. In short, alliances allow companies to plan for multiple futures, especially in a business environment marked by disruption. Many companies are not yet certain of the evolutionary path of their industries, and alliances can be a lower-risk form of exploration. Executives increasing willingness to consider alliances shows their growing sophistication in balancing capital allocation and strategic direction. 4 While deal intentions have tapered from the strong figures of 2015, they have largely held up well above the long-term Barometer average. More than half () of our automotive respondents plan to pursue an acquisition in the next 12 months. Executives are using deals to generate their own tailwinds. They recognize the need to respond positively to disruption and complexity. Within the automotive sector, where the rate of innovation is accelerating and barriers to entry are being eroded, buying rather than building innovation may well be a better and faster option. Do you expect your company to actively pursue acquisitions in the next 12 months? 70% 64% 59% 47% Oct 10 Apr 11 Oct 11 21% 19% Apr 12 Oct 12 Deal fundamentals remain supportive of a healthy M&A market Executive confidence in the number and quality of acquisition opportunities, and in the likelihood of closing deals, remains supportive of a sustained positive M&A market M 49% 42% 38% Auto CCB average 29% 26% Apr 10 39% Relationships between companies are becoming more fluid and complex as business models are reinvented. These unprecedented collaboration and relationship opportunities involve customers, suppliers and competitors. These alliances often replicate features of the so-called sharing economy, the internet-enabled ecosystem of facilitated peer-to-peer resources. Companies will commit underutilized assets, or assets that others are better positioned to exploit, in exchange for capabilities more efficiently owned by collaboration partners. M&A outlook of automotive executives expect the M&A market to improve in the next 12 months Apr 13 Oct 13 Apr 14 Oct 14 What is your level of confidence in the following at the global level? 27% 7% 18% 9% 8% 6% 23% 30% 38% Positive 4 53% 54% 63% Stable Negative 68% 77% 57% 42% 73% 50% 31% Number of acquisition opportunities Quality of acquisition opportunities M 57% 62% 37% Likelihood of closing acquisitions of future transactions anticipated to exceed US$250 million in value Capital Confidence Barometer 5

5 M&A outlook With global growth moderating and uneven, automotive companies continue to focus as much on where they are operating as what they are doing. Our survey finds automotive companies eager to look abroad to find pockets of growth, with more than three-quarters primarily looking for cross-border acquisitions in the next 12 months M 76% of automotive executives are planning acquisitions outside their immediate region Stronger growth in the United States and United Kingdom and the attractiveness of highquality assets in Germany are making these countries popular destinations for investment. Top investment destinations for automotive United States United Kingdom India Germany Brazil New tax rules challenge global M&A Since the release of the Organisation for Economic Co-operation and Development s (OECD) final base erosion and profit shifting (BEPS) guidance in October 2015, local country adoption and legislation have started to emerge globally. Our survey finds a range of attitudes toward the changes in tax regulations, with more than a third (36%) of our respondents yet to consider the implications. There has been a direct impact on current dealmaking, with a quarter of automotive respondents stating that they have altered or cancelled planned transactions in response to the guidance M 2 of automotive respondents have altered or cancelled planned transactions in response to OECD s BEPS guidance 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. About EY s How you manage your Capital Agenda today will define your competitive position tomorrow. We work with clients to create social and economic value by helping them make better, more informed decisions about strategically managing capital and transactions in fast-changing markets. Whether you re preserving, optimizing, raising or investing capital, EY s Transaction Advisory Services combine a unique set of skills, insight and experience to deliver focused advice. We help you drive 6 competitive Capital advantage Confidence and Barometer increased returns through improved decisions across all aspects of your Capital Agenda EYGM Limited. All Rights Reserved. EYG no GBL ED None 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/ccb