Deal Activity Slightly Declines in 2016; 2017 Deal Makers Cautious

by Foley & Lardner LLP
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Aggregate automotive industry M&A deal values for 2016 were down 34% to $41.0 billion compared to $62.1 billion in 2015 according to PwC’s recently released report, PwC Deals: Global Automotive M&A Deals Insights Year-end 2016. Deal volume also saw a slight downtick of 1.4% to 583 deals compared to the 591 deals of 2015. Deal value depression was largely driven by a decrease in megadeals (2016’s 10 to 2015’s 12), and average disclosed deal volume for 2016 also decreased by 46% from $388 million to $211 million.

Excluding ZF Friedrichshafen AG’s $12.5 billion acquisition of TRW Automotive Holdings Corporate in 2015, 2016 deal values decreased by 17% relative to 2015 values. Despite this decline in deal volume and values, industry analysts expect the overall automotive industry to remain healthy and are expecting global vehicle assembly to increase at a CAGR of 3.1% through 2022. AutoTech is expected to be a driving factor in deal volume growth for 2017 and beyond, but uncertainty with the Trump administration’s policies have many dealmakers waiting to see how these policies will impact long-term strategies.

Automotive suppliers generated almost half of 2016 automotive deal volume, totaling $19.8 billion, and that trend is expected to continue going forward. Although this was down sharply from 2015’s $32.9 billion, future deal volume is expected to be driven by cutting-edge technology and new business models for self-driving cars, connected cars, and increasing fuel economy trends. As suppliers look to plug gaps in their portfolios, acquisition trends are likely to remain strong in 2017 and beyond.

Suppliers, new auto sector entrants (such as Apple, Google, and Verizon) and OEMs will be driving the demand for emerging automotive technologies as they look to integrate Advanced Driver Assistance Systems (ADAS) and autonomous driving technologies into their product portfolios. While deal volume will continue to be driven by ADAS and autonomous driving hardware, such as cameras, radar systems, and sonar systems, deal focus is likely to concentrate on the embedded software and services side of the AutoTech industry. Largely driven by disruptors in technologies and new mobility solutions, the changing landscape of mobility, retail model distribution, and new vehicle ownership models will continue to generate a greater influence on future M&A activity.

PwC points out that a variety of factors will likely keep deal volumes strong, including large cash balances, pressure from shareholders and emerging competitors, increased pace of innovation, and the emergence of AutoTech. Although the global auto industry remains healthy, industry analysts note that dealmakers will want to assess Trump’s influence on the economy, trade policies, and environmental rules before pursing strategic long-term acquisitions.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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