Automotive supplier M&A update: 2H-2016

Automotive market overview

The domestic automotive market rebounded well in the second half of 2016 after a middling performance to start the year. Year-over-year light vehicle sales rose by 4.9% in December 2016, and total light truck sales grew by 11.1% during the same time period. 1 Average transaction prices rose 1.5% from a year earlier reaching at all time high of $35,309 in December 2016, according to Kelley Blue Book. Domestic auto-makers enjoyed stronger than expected sales during the fourth quarter of 2016 which helped propel the industry to a seventh straight record year with 17.55 million vehicles sold. Lower gas prices and easy access to credit bolstered consumer spending, while aging vehicles and enhanced auto technology provided additional incentives for buyers.

Automotive supplier M&A activity

Overall M&A activity in the U.S. automotive supplier industry in 2016 was substantially lower compared to 2015. During 2H-2016, 21 transactions were reported in the U.S. automotive supplier industry. The amount of reported transactions represents a roughly 30% decrease compared to the same period during 2015. The drop in reported transactions is not surprising considering the rampant M&A activity that took place in the industry in the prior year, which had a record number of transactions and megadeals that drove up overall deal values. Despite the general decline in 2016, several indicators including new entrants into the automotive market, cash-rich balance sheets, and increased investments in auto related technology provide an optimistic outlook for future M&A activity in the industry.

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