Automotive M&A dominated by PE players

Private equity houses have accounted for over 65% of deal value in the global automotive M&A sector this year. Activity in the sector has been positive with 419 transactions identified by PricewaterhouseCoopers for the first nine months of 2003. Compared to the same period last year the number of transactions is down by 73 (15%) but the total disclosed value of deals in the same time has risen by 31% to reach $14.8bn. This increase is due to the $4.7bn acquisition of TRW Automotive, which on its own accounted for over 30% of the total value.

Private equity funds backed 12 of the top 20 deals in the sector with Blackstone, Carlyle, Castle Harlan, Heartland and Hg Capital the primary players in the sector. US private equity groups took the lead with investments worth over $6bn in the sector over the first nine months of 2003.

Philip Wylie, head of the automotive team at PricewaterhouseCoopers corporate finance, said: “Private equity funds are taking advantage of the relatively low multiples in the sector. Many deals are being done at around 4.6x EBITDA, picking up groups with strong strategic positions and healthy underlying cash flow. As long as the general stock market multiples remain low, the interest of the private equity players is likely to continue to be brisk.”

In Europe he expects the rate of consolidation among dealers to pick up following changes in legislation surrounding the control that vehicle manufacturers can exert on their franchised dealers. Geographically, transaction volume continues to be dominated by Europe (49%) followed by North America (27%) and Asia (21%). However, the value of European transactions has dropped from 61% of the total disclosed value in 2002 to just 14% in 2003.

Wylie explains: “This drop in the value of European deals reflects the lack of very large deals in the market over the period rather than any underlying resistance to the push for consolidation. In Europe, 2002 was marked by six large transactions, which accounted for over $5bn or 75% of disclosed value, whereas 2003 has seen only two deals with a value over $300m.”