Automotive M&A

By Mustafa Bayramli (Wharton), Gurneek Gill (UCL), Nihat Anwar (Stockholm School of Economics)

 

I. Industry Background


Companies involved in the design, development, and manufacturing of automobiles, all belong to the automotive industry. In general, the industry can be divided into two large segments, namely, commercial vehicles and passenger cars, with the latter being the largest contributor to total sales.


The global market is expected to be worth $529.25 billion by 2028, with an anticipated CAGR of 3.8%. Asia is the largest automotive region worldwide in terms of sales and production, particularly by considering the rapid growth of the Chinese market. North America and Europe also contribute a large part of total sales and production. In terms of market capitalization, the largest automakers are Tesla (USA), Toyota (Japan), Volkswagen (Germany), Daimler (Germany), and BYD (China) - showcasing the significance of the aforementioned three regions.


Due to the COVID-19 pandemic, global shutdowns and weakened demand have negatively affected supply chains and subsequently inhibited production. Though the industry took a substantial hit, global car sales are expected to increase by 9% in 2021 as the economy recovers. However, 2020 still marks the third consecutive year with negative growth in global automotive vehicle production. Meanwhile, global electric vehicle production and sales rose sharply in 2020. The surged reception of electric vehicles, as well as hybrid, self-driving and semi-autonomous cars, is continuing to boost growth. Other, and more general market growth factors include, inter alia, overall macroeconomic activity and technological advancements.


While the pandemic caused a notable disruption, M&A activity is currently high, and many noteworthy deals have taken place in recent months. In fact, 2020 saw almost 45,000 announced M&A deals with an aggregate value exceeding $3.4 trillion, with the push towards electrification and automation being the main driver.


II. Traton - Navistar


The Traton group, a Volkswagen Group subsidiary, are a global leading commercial vehicle manufacturer and on 7th November 2020, announced that they would be entering a definitive merger agreement which will see them become official owners of Navistar, the US based American holding company specialising in truck making. Having already owned 16.7% of Navistar’s outstanding shares, it made sense for Traton to purchase the full 100% given the success that the two companies have seen together in their strategic alliance. Since partnering in 2017, both companies benefited greatly via increased purchasing scale and the assimilation of their innovative technologies. However, this full purchase will create an immense global opportunity for both firms since Traton have a strong foothold in Europe and South America, while Navistar are particularly robust in North America. Furthermore, Matthias Gründler, the CEO of Traton, also mentioned how this deal would “expanding Traton’s reach across key truck markets worldwide, including scale and capabilities to deliver cutting-edge products.” Similarly, Navistar commented by saying that they were glad to be giving “immediate and substantial value to shareholders” and the firm will look to continue the combined growth already achieved.


The global commercial vehicle industry is one that is fast growing and evolving. Despite the challenges that COVID-19 brought in 2020, Automotive M&A deal volume rapidly picked up in Q4 2020 and that has continued into 2021 as the pandemic comes to an end. Moreover, deal volume has been largely correlated to investment in New energy vehicles and invention and technology amongst all automotive sub-sectors. Given that Navistar pride themselves in leading the world in delivering carbon-reducing technologies, it is no surprise that Traton purchased the remaining shares and it is likely many more similar M&A deals will occur under the same rationale.


III. FCA - PSA Group

On January 16th 2021, Fiat Chrysler Automobiles NV and Peugeot-maker PSA Group were finally able to conclude their merger of equals; creating the third biggest manufacturer in the world by revenue, with a yearly turnover of £144 billion. The new entity is set to be called Stellantis NV and both companies will be glad to see 99% shareholder approval after 2 long years of talks. Within its profile, Stellantis will be able to globally represent a huge compilation of brands from the likes of Jeep and Peugeot to luxury-end makers such as Maserati and Alfa Romeo. More importantly however, Stellantis will look to reset and conquer some of the challenges that lie ahead in the ever evolving global car business; largely from the shift towards innovation in the electric vehicle space. Moreover, given the negative impact that COVID-19 had on the automotive industry in parts exports and manufacturing, it is no surprise that plans to merge were accelerated at the final stage and $6 billion yearly cost synergies have already been estimated due to the combination of engineering and economies of scale.


Nonetheless, the merger does not come without its challenges which consist of dealing with underachieving factories, trailing brands and potential cultural clashes. Furthermore, their direct competitor General Motors is piling investment towards the electric vehicle space meaning Stellantis will have to swiftly match this to compete in this market space.