The mega-deals that drove deal market value in 2007 were noticeably absent in 2008, with the top five transactions worth a combined $16.3 billion versus $33.0 billion in 2007. Despite this, there were still 13 completed deals valued at more than $500 million that combined to account for 72 percent of the total disclosed deal value.
"The economic conditions and lack of available credit contributed to the absence of the mega-deals that we have seen in recent years," said Paul Elie, U.S. automotive transaction services leader, PricewaterhouseCoopers LLP. "Potential transactions were not completed or were terminated because of the distress felt across the industry. Economic and credit conditions that allow automotive companies to return to profitability and financial viability are likely preconditions for the return of a vibrant deal market."
Meanwhile, automotive companies continue to restructure to maintain liquidity in the face of the economic downturn.
"An eventual increase in M&A deal activity is inevitable as automakers and suppliers reorganize to achieve financial viability," said Paul McCarthy, U.S. automotive transaction services strategy leader, PricewaterhouseCoopers LLP. "Although there have been government funds to the supply base, such as the $5 billion aid package for suppliers in the U.S. and equity stakes in France, further government liquidity assistance will likely be necessary to specifically support the consolidation and rationalization that is necessary to move the industry to a sustainable state."
Financial buyers were responsible for only 17 percent of global transacted value in 2008, versus 44 percent in 2007 and 54 percent in 2006. In the U.S. in particular, financial buyers were largely inactive in the latter half of 2008, closing deals worth only $271 million in value in the second half of the year versus $2.5 billion in the first half of the year. Volume declined approximately 17 percent from 143 deals in 2007 to 118 deals in 2008 while total disclosed value declined approximately 78 percent from $25.1 billion in 2007 to $5.5 billion in 2008.
"While economic instability pervading the automotive market is the current concern, managing volatile commodity costs and manufacturing footprint realignment will also be keys to success in the global automotive industry in the next decade," emphasized Elie.
McCarthy noted, "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."
