After a tough year in which the industry battened down the hatches for the coming storm, the automotive industry cannot expect 2012 to be anything other than difficult. Europe in particular has not disappointed the ‘gloom mongers’ with its large share of grim news: while the much-anticipated merger of Volkswagen and Porsche is now on hold, with a similar linkup between truck makers Scania and MAN also marking time, rivals like PSA report sales and market share losses while Fiat continues to search for a partner. In other parts of the industry, the news is of last-minute searches for a saviour (Saab) and lost opportunities such as Rheinmetall’s plan to sell automotive division KSPG.
But in pure M&A terms, 2011 was actually much worse for North America. While Europe and Asia each managed over €10bn (US$12.8bn) worth of action, Mergermarket data shows North America only managed a little over half of that at €6bn. Similarly, North America managed just 61 deals to Europe’s 109. What does this mean for 2012?
After a difficult year in which the industry battened down the hatches for the coming storm, the automotive industry cannot expect 2012 to be anything other than difficult.
US automotive inactivity may actually be a sign that, free of European problems and Asia’s frenetic growth, American vehicle manufacturers used 2011 to continue restructuring their businesses and deleverage their balance sheets. Industry observers are still expecting hedge fund and private equity owners exiting their investments in 2012 to reap sizeable rewards. But while buyers from China and Brazil may still be drawn to large disposal programmes like that of Visteon, strategic buyer caution could also be holding down prices with few targets with an EBITDA of more than US$150m clinching a deal.
Despite automotive supplier interest in South American targets to supply the US vehicle manufacturers to the north and the emerging market in Latin America, there are also plenty of reasons to think that this market will be sluggish at best in 2012. The Brazilian government closed the year enacting a 30 basis point tax hike for cars imported from outside Brazil, Argentina and Mexico; though the measure is set to expire at the end of 2012, Brazil is expected to follow with further protectionist measures. Kia‘s country manager, Jose Luis Gandini, has criticized the move as a reaction to an influx of Chinese brands such as JAC Motors, Chery, Lifan and Hafei. But Leticia Costa, a partner at the Sao Paulo-based consultancy Prada Assessoria, also points out that in a market already dominated by foreign manufacturers such as Fiat, Volkswagen, General Motors and Ford, there has for some time been little more than inorganic growth.
Industry observers are still expecting hedge fund and private equity owners exiting their investments in 2012 to reap sizeable rewards.
Which brings us back to Europe: While the market has undoubtedly taken a battering in 2011, industry observers report an active mix of US and Asian buyers scoping out the continent’s automotive OEMs and suppliers which, while under the kosh, still offer sought-after technology and innovation. From India, for example, the likes of Anand Group – which wants to acquire ride control product makers through its shock absorber maker Gabriel India – are still on the prowl. This of course is to say nothing of the likes of India’s Tata Autocomp and Mahindra & Mahindra, as well as China’s Youngman and Dongfeng Motor groups. These investors, though traditionally difficult to get to sign on the dotted line, are still around. The question must be whether Europe and the US can this year contain domestic economic pressures enough to let these buyers in.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Thomas Williams is deputy editor and head of German coverage for Mergermarket EMEA. He is also Mergermarket’s European automotive and industrials correspondent, and writes for the group’s live deals product, Dealreporter. Additional contributions by Sam Weisberg in New York and Priscilla Murphy in Rio de Janeiro
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