OREANDA-NEWS. April 20, 2009. Overall economic and automotive industry uncertainty has contributed to the decline of automotive M&A deal volume and value in 2008, according to PricewaterhouseCoopers' report, Automotive M&A Insights, reported the press-centre of PricewaterhouseCoopers.

Following a remarkable deal market in 2007, closed deal volume declined 9% to 549 transactions in 2008 compared to 604 the previous year. The disclosed value dropped 45% to US 31.6 billion in 2008 from US57.1 billion in 2007. The lack of available financing forced acquirers to stay on the sideline or shift focus and execute smaller transactions. However, industry restructuring — especially if it is linked with increasing access to financing — may encourage deal flow to return.

The mega-deals that drove deal market value in 2007 were noticeably absent in 2008, with the top five transactions worth a combined US 16.3 billion versus US 33.0 billion in 2007. Despite this, there were 13 completed deals valued at more than US 500 million that combined to account for 72% of the total disclosed deal value. Nine of the top 10 transactions in 2008 were executed by trade or financial buyers specializing in distressed–asset situations, versus only five in 2007.

The larger of these deals were concentrated in Europe and appeared to have been driven by consolidation and market expansion strategies. Examples include Schaeffler’s continued investment in Continental AG (US 3.2 billion of which was enacted in 2008, raising Schaeffler’s stake from 8% to 30%), Volkswagen AG’s acquisition of a majority stake in Scania (US 4.4 billion) and Tata Motors’ purchase of Jaguar Land Rover (US 2.3 billion).

Among the largest Russian deals in 2008 is Renault’s purchase of 25% stake in OAO Avtovaz (US 1.2 billion), the acquisition of US 447m 75% stake in Musa Motors by UK Inchcape PLC and Daimler AG’s acquisition of US 250m 10% stake in KAMAZ.

Financial buyers were responsible for only 17% of global transacted value in 2008, versus 44% in 2007 and 54% in 2006. In the US in particular, financial buyers were largely inactive in the latter half of 2008, closing deals worth only US 271 million in value in the second half of the year versus US 2.5 billion in the first half of the year. Volume declined approximately 17% from 143 deals in 2007 to 118 deals in 2008 while total disclosed value declined approximately 78% from US 25.1 billion in 2007 to US 5.5 billion in 2008.

Wilfried Pototschnig, deputy head M&A Lead Advisory, PricewaterhouseCoopers in Russia, said:

“As uncertainty continues to be a near-term certainty in the global automotive industry, the lower deal values and volumes as seen in 2008 may only be the first signs of further deceleration in the deal market. The return of liquidity and credit in the global financial markets will be a critical leading indicator of the returning health of the deal market. Whereas transacted volume may remain relatively stable, disclosed value will likely remain low or continue to decline for the near-term. The deal flow from distressed situations will likely continue as the global recession, automotive industry distress, and positive restructuring efforts lead to more automotive assets up for sale in an effort to raise capital. However, mature market companies will need to expand their footprint in the Russian automotive market and M&A activity might be instrumental in achieving this objective. The strong and successful companies of tomorrow may very well be forged through M&A activity during the current economic downturn.”

Companies must remember that successful transactions during downturns have historically yielded better returns. The financially healthy and successful companies of tomorrow may very well be forged through M&A today.