Automotive sector around the world saw lot of activity with the change in the top brass due to change in control. In 2010, automotive sector saw M&A worth $29 bn, with the Asia-Pacific region accounting for 11 bn of the total value vis-a-vis $39.4 bn witnessed in 2009. The count of deals also fell to 521 in 2010 compared with 532 in 2009. In 2010, M&A activity was driven by strategic buyers focused on strengthening business units following the global financial crisis.
As emerging economies viz. China & India has huge insight potential, it observed significant increases in deal activity & value. Automotive companies are investing in strategic deals aimed to increase their geographic reach and enrich their technology portfolio.
Activities in Asia in terms of deal value more than quadrupled from 2009 levels to $11 bn due to large vehicle manufacturer transactions.
I expect this trend to continue after some successful acquisitions viz. Jagaur Land Rover by Tata Motors & Ssangyong Motors by Mahindra & Mahindra in India.
Jaguar Land Rover (JLR) is a British automotive business owned by Tata Motors of India. JLR was set up by Ford Motor Company in 2002 as a single entity to manage the businesses of both Jaguar cars which they acquired in 1989, and Land Rover which was acquired from BMW in 2000. JLR was acquired from Ford by Tata Motors in 2008. Tata acquired JLR from Ford for $2.3 bn.
Tata has increased its capex guidance for JLR to a normative range of 10-11% of JLR’s sales, which shows confidence in the JLR growth story going forward. We can also see that how JLR has turned around from a negative level of operating profits in Q1FY10 to a stronger operating profit in Q4FY11, adding immense synergies to Tata’s consolidated profits. Now, more than 80% of total revenue at consolidated levels comes from JLR for Tata Motors.
After Tata Motors, Mahindra & Mahindra has also acquired 70% stake in loss-making Ssangyong, Korea for INR 21 bn in 2010. Ssangyong operating loss narrowed to KRW55 bn (INR 2.2 bn) in CY10 vis-a-vis KRW293 bn (INR 12 bn) in CY09. For CY11, M&M expects Ssanyong sales to reach to 120000 units from 80000 units in CY10.
The European automotive industry was also very active in the deal market, accounting for 46% of global automotive M&A activity by volume and 41% by value.
Auto-makers and suppliers are also much focused on localizing and expanding operations, particularly in the BRIC (Brazil, Russia, China and India) markets, to establish a global footprint and increase local content leading to further growth by inorganic means.
M&A activities are expected to increase in coming years as consolidation normally happens as & when markets become more mature.
