Price Waterhouse: Globalization Will Continue to Drive Consolidation
12 May 1998
Price Waterhouse Survey Finds That Globalization Will Continue to Drive Automotive Industry Consolidation
Record Number of Mergers Among North American Suppliers;
Cross-Border Acquisitions Soar
U.S. Companies Remain Vulnerable to 'Refocus or Sell' Syndrome
DETROIT, May 11 -- A new Price Waterhouse survey finds that
consolidation and globalization continue to drive much of the worldwide M&A
activity in the automotive industry. Record levels of acquisitions are
expected in 1998 on top of the nearly 750 transactions in 1997, with a
disclosed value in excess of $28 billion.
Michael Burwell and William Doepke, who lead the Price Waterhouse
Corporate Finance Automotive practice in the U.S., say, "The survey results
combined with the spate of recent M&A announcements make it clear that U.S.
companies remain vulnerable to a 'refocus or sell' syndrome -- either selling
non-strategic assets or strengthening core assets through acquisitions. There
will also be more cross-border deals in 1998 - and U.S. companies will not
necessarily be the acquirers."
The second annual Automotive Deal Survey by Price Waterhouse found that:
-- North America saw 286 domestic automotive transactions in 1997 with a
total deal value of $10.5 billion.
-- North American companies looking to increase their presence in the
European automotive market accounted for 63 deals in 1997, with a
disclosed value of $5.8 billion.
-- European merger and acquisition activity in the automotive sector grew
by over 50% in 1997, with a disclosed value of $15 billion from
371 transactions.
-- UK companies were involved in 139 automotive transactions with a
disclosed value of over $8 billion, representing over 28% of total
automotive transactions by value on a global basis.
-- In 1997, businesses in continental European countries targeted lower
cost manufacturing bases. For example, over 50% of German acquisitions
in the automotive sector were in Asia, South America and Eastern
Europe.
-- Consolidation in the dealership sector remains strong, particularly in
the U.S. and UK, with 189 transactions, including 26 cross-border
deals.
Burwell and Doepke note that the industry will remain under pressure in
1998 and beyond as it undergoes a global consolidation that is rapidly
shrinking the universe of automotive suppliers of all sizes.
Based on the study findings, Burwell and Doepke say that the M&A trend
will accelerate in 1998 for the following reasons:
-- More Consolidation -- Original Equipment Manufacturers ("OEMs")
continue to be the main drivers of consolidation, as they are demanding
a smaller universe of suppliers. Additional factors fueling the
strategic drive towards consolidation include economic turmoil in the
Far East, widespread overcapacity and low levels of projected growth in
key markets.
-- Slower Growth -- Demand in the more mature and larger markets of North
America and Western Europe in 1998 is likely to keep apace with the
demand of 1997. This will force the industry to continue to globalize
and adopt new technologies to maintain its success.
-- Changing Strategies -- For example, made-to-forecast production is
resulting in overcapacity and sales push strategies. This will force
the industry to focus on customer-driven production with real made-to-
order capability.
Price Waterhouse Corporate Finance advises and supports clients in the
development of their businesses. Services include: mergers and acquisitions;
strategic advice; joint ventures and strategic alliances; valuations;
shareholder value studies; financings; and advice on initial public offerings.
Price Waterhouse (http://www.pw.com), a business advisory and consulting
organization with 60,000 professionals around the world, helps its clients
develop and execute integrated solutions to build value, manage risk and
improve global performance.
For a copy of the study, please call Rebecca Herr at 248-723-3678 or email
Rebecca_Herr@notes.pw.com.
SOURCE Price Waterhouse