TORONTO: The recovery of the automotive industry and its sustainability over the longer term will be driven by mergers and acquisitions, says a report by PricewaterhouseCoopers LLP (PwC).
Drive Value—Automotive M&A Insights says an increase in deal value was influenced heavily by the US Treasury investment in the vehicle-manufacturing sector, which occurred in response to a near collapse of the automotive industry. The industry reacted by seeking infusions of capital, shedding non-core assets, renegotiating debt obligations and pursuing mergers out of necessity.
Global deal value soared to US$121.9 billion, up 286% from $31.6 billion in 2008. Despite the record high deal value in 2009, the total deal volume fell to 532 transactions, representing a 3% decline from an already weak 2008 level and its lowest point since 2004.
“The current deal environment is showing positive signs and presents a number of opportunities for both strategic and financial buyers who have access to financing,” says Damian Peluso, a PwC partner and Canadian automotive leader.
The report notes as the auto industry consolidates and companies continue restructuring efforts, investors who have the liquidity and access to capital are well-positioned to pursue growth through acquisitions. Automotive companies with stronger operating models and cash positions will likely leverage M&A to develop a competitive advantage.
“As we look forward, companies are likely to increase their focus on growth via the traditional drivers of M&A including driving economies of scale, acquiring technology and expanding their geographic and customer base,” says Peluso. “Automotive companies seeking long-term success will drive the deal market in 2010, by developing and executing strategies for sustainable growth and value creation.”
Click here to access a copy of the report.