Auto-Parts M&A Value Seen Reaching Record $48 Billion This Year

Auto-supplier deal value will rise to a record this year as partsmakers seek size and skills to meet demand for software that powers autonomous driving and hardware that boosts fuel efficiency, PricewaterhouseCoopers LLP said.

The transactions will more than triple to about $48 billion from $14 billion, topping the previous high of $35 billion in 2007, the consulting firm forecast. Purchases of $500 million or more are increasing the total value, while the number of deals may drop to 201 from 217 last year, according to its study.

Rising U.S. auto sales, led by pickups and sport utility vehicles, are fueling supplier mergers. Carmakers’ continued expansion in China and the production rebound in Europe are also contributing. Suppliers came out of the recession lean and after five years of growth have cash to spend, PwC said.

“We’ve just had a very phenomenal stretch coming out of the downturn,” Dietmar Ostermann, the Detroit-based head of the firm’s global auto advisory practice, said in an interview. “The last five years have been very, very profitable throughout the auto world.”

PwC assessed suppliers as buyers, sellers or financially distressed companies, using data and comments from executives.

ZF, Magna

The deal activity got a major boost from ZF Friedrichshafen AG’s May purchase of TRW Automotive Holdings Corp. for more than $12 billion to create the industry’s second-largest supplier.

That transaction gave Friedrichshafen, Germany-based ZF access to TRW’s technology -- from air bags to collision sensors -- that keeps drivers secure and helps them avoid crashes.

Magna International Inc. said in July that it plans to buy Germany’s Getrag for $1.9 billion, giving North America’s biggest auto-parts maker control of one of the largest independent producers of vehicle transmissions, which are helping carmakers cope with requirements for higher mileage and lower emission standards.

Auto-parts combinations work far more often than not, Ostermann said. Of the 12 most acquisitive suppliers since 2009, 10 improved their profit margins faster than the other companies in their sector that didn’t make acquisitions, PwC found.

Private-equity firms are becoming more involved in buying auto suppliers, representing about 27 percent of all deals last year, the study showed. In one such transaction, Bain Capital agreed in January of this year to buy TI Automotive, a maker of fuel-management systems.

Historically, private-equity firms were buyers about 10 percent of the time, Ostermann said.

“They believe there’s a long-term growth strategy in automotive and now that there’s a technology play, they like that,” he said.