Auto Suppliers On-Track for Record Acquisitions

September 13, 2017

The auto industry's rush to develop self-driving vehicles, connected cars and electric vehicles has prompted suppliers into a feeding frenzy of acquisitions.

 

This year, suppliers are expected to complete a record $57 billion worth of acquisitions, nearly double the value of deals in 2016, according to a study by PricewaterhouseCoopers. The consulting firm added up 203 acquisitions that either closed or are expected to close this year, up from 166 in 2016.

 

Deal makers were motivated by self-driving vehicles, connected cars and fuel economy, said Dietmar Ostermann, leader of PwC's automotive advisory team and co-author of the report.

 

Those three areas "are driving a lot of this," Ostermann said. "Suppliers are trying to find out what it really means for them and to what degree they need to change."

 

The study included all acquisitions completed for the year-to-date and deals expected to finalize in 2017.

 

While the fundamental technology trends—connected cars, self-driving vehicles and improved fuel economy—are clear, the timing of acquisition activity can be tricky. A number of auto makers have announced plans to introduce electric cars and plug-in hybrids, but sales forecasts are hard to predict.

 

"Nobody is getting rich right now by focusing on electric vehicles, but some suppliers see the handwriting on the wall," Ostermann said. "If you manufacture engine blocks, it doesn't take a brain surgeon to figure out that 50 years from now, we're not going to have as many engine blocks."

 

While the timing of these trends is imprecise, traditional suppliers are feeling the heat. Now that auto makers are designing "smart" cars—that is, connected cars that can drive themselves—the consumer electronics industry is buying seats at the poker table. 

 

To gauge which supplier segments are generating the biggest profits, Ostermann's group calculated EBITDA—earnings before interest, taxes, depreciation and amortization—for each industry segment. Last year, the most profitable segment for suppliers was raw materials, with an aggregate EBITDA of 15 percent.

 

The least profitable segment was interior trim, with an EBITDA of 7.7 percent.

 

While that segment's survivors figure out how to make a profit, deal makers will pay big premiums for electronics suppliers.

 

"The electronics suppliers are getting very serious," Ostermann said. "These companies will play a much bigger role."

 

Sedgwick, David. (2017) "Auto suppliers on track for record acquisitions". Retrieved from "http://www.rubbernews.com/article/20170905/NEWS/170909992/auto-suppliers-on-track-for-record-acquisitions

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