Automotive supplier M&A update - Fourth quarter 2015

Market overview

The domestic automotive market continued its recovery in 2015 recording 17.8 million unit sales, a 9 percent increase over 2014.

That momentum continued into 2016 with seasonally adjusted annual total vehicle sales at 17.9 million units through the end of February1. Low interest rates, low gas prices, reduced unemployment, increased consumer confidence, and greater replacement demand for vehicles have all contributed to growth in the US auto sales market over the past two years. Although interest rates could be a slight headwind, buying conditions are expected to remain positive throughout 2016 before slipping in 20172.

M&A activity

Reported M&A activity in the automotive supplier sector reduced to 108 transactions in 2015, a 10 percent decrease over the prior year. 2015 started positively with an increased number of deal closures recorded in the first and second quarter (14 percent and 8 percent respectively) compared to the same period of 2014. However, M&A activity slowed considerably in the second half of 2015. The third and fourth quarters recorded double digit decreases in completed transaction activity over the comparative period in 2014. The first quarter of 2015 was the busiest of the year with 33 completed transactions. Despite the reduction in the number of completed transactions in 2015, reported deal value increased, reaching $21.2 billion in aggregate value, a three-fold increase over 2014. The increase was due mostly to the acquisition of TRW Automotive Holdings Corp. by ZF Friedrichshafen AG, a global leader in driveline and chassis technology, in a transaction worth $14.5 billion. Excluding the TRW Automotive acquisition, aggregate deal value in 2015 increased by 7 percent in comparison to 2014 or by just under $0.5 billion.

The majority of M&A activity in the auto supplier industry continues to be carried out by strategic acquirers—89 percent in 2014 and 88 percent in 2015. Thirteen transactions were completed by financial acquirers in 2014 and 2015. The most active strategic acquirer in 2015 was Power Solutions International, Inc. (NasdaqCM:PSIX) who completed three transactions. Kinderhook Industries was the most acquisitive financial buyer with two closed transactions recorded in 2015.

Trading multiples

Comparable public companies are trading in a moderate range; EV/Revenue ranging from 0.3x to 2.5x and EV/EBITDA ranging from 4.0x to 10.3x. Average EV/EBITDA multiples are down 28 percent from the first quarter of 2015 having peaked during 2015’s second quarter.

Comparable public company EV/EBITDA history

Source: Baker Tilly Capital Insights and Capital IQ, March 2016

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1Data obtained from Economic Research of the Federal Reserve Bank of St. Louis
2Automotive News, March 9 2016

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