SPACS drive automotive sector dealmaking uphill

White & Case LLP

Automotive and automotive-adjacent M&A sees fourth consecutive quarterly rise in value, supported by strong SPAC interest in electric vehicles

Looking at automotive sector M&A, you would think the pandemic had never happened.

After a quick and dramatic COVID hit in Q1 2020, dealmaking value in the global automotive sector has steadily increased throughout the pandemic period. Q1 2021 value in the sector hit US$40.8 billion (the highest since Q2 2009’s US$52 billion), while volume hit 89 deals, both impressive increases against Q1 2020’s US$5.6 billion value and 72 deals.

The SPAC boom—a standout multisector global trend in 2020—contributed heavily to automotive’s surprising rise, as flourishing electric vehicle (EV) companies have been especially popular targets for SPAC acquisitions during the pandemic doldrums.

An uptick in late 2020 was largely driven by SPAC transactions, many involving companies plying CASE (connected, autonomous, shared, electrified) technologies. As in a variety of other industries, the SPAC boom in Automotive M&A kicked off in 2020, with SPAC Graf Industrial Corp.’s US$1.8 billion business combination with Velodyne Lidar.

SPACs are likely to continue to accelerate M&A activity throughout 2021, thanks to the increasing acceptance of EVs and the US$2.5 trillion expected to change hands before 100% electrification is achieved.

EV SPACs shift gears

Even the highest-value auto deal in Q1—the US$11.8 billion merger between US-based EV producer Lucid Motor and US-listed SPAC Churchill Capital Corp.—was an example of the SPAC trend.

The California start-up Lucid, backed by Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), plans to start shipping its first luxury electric vehicle—the 500-mile range Air sedan—later this year. The deal, announced in February, values Lucid at an estimated US$24 billion.

Other prominent SPAC acquisitions of EV companies in the first quarter include Israel-based REE Automotive’s merger with US-listed SPAC 10x Capital Venture Acquisition Corp. for a US$3.1 billion enterprise value, the US$2.5 billion merger between US-based luxury EV developer Faraday & Future and Property Solutions Acquisition Corp. and Decarbonization Plus Acquisition Corporation’s US$2 billion acquisition of Hyzon Motors, a US-based supplier of electric commercial vehicles and trucks.

Of course, the boom in automotive M&A did not attract SPACs alone. The quarter also saw two significant deals involving tire companies: Goodyear’s US$2.5 billion acquisition of Cooper Tire & Rubber Company and the US$6 billion acquisition of Mavis Tire by a consortium of PE firms which included TSG Consumer Partners and BayPine.

Despite the SPAC trend, traditional M&A did and will continue to account for the overwhelming majority of automotive M&A transactions. But as with SPAC transactions, CASE companies are seeing most of the M&A action. Recent examples include Amazon’s US$1.2 billion acquisition of Zoox, Uber’s US$2.6 billion acquisition of Postmates and Traton’s US$3.7 billion acquisition of Navistar.

Outlook

The automotive sector continued its recovery from the COVID-19 pandemic in Q2 2021, and dealmaking appears set to continue an upward trajectory for the rest of the year, at least. The SPAC frenzy has been impossible to ignore, with interest from SPACs likely to continue dominating the megadeals, if not the majority of the deal count.

Beyond 2021 and its unique post-crisis business climate, it’s entirely likely that the SPAC craze may cool in the sector, as the bulk of automotive M&A transactions continue to involve a large number of joint ventures and strategic technology alliances among OEMs and suppliers, sale of non-core assets in the combustion engine/powertrain space and distressed deals and supplier consolidation.

Whether via SPACs or not, the sector will surely continue to attract high levels of dealmaking activity as investors hunt for lucrative startup potential, especially among CASE companies.

[View source.]

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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