Global automotive deals insights: Year-end 2017

PwC Deals

Global Automotive Deals Insights Year-End 2017

In the driver's seat: Automotive M&A pushes forward in 2017

Executive summary

Global Automotive M&A activity was strong in 2017. Automotive M&A deal value is up 29.9% to $53.2 billion. Volume is up 2.6% to 598 deals, and the average disclosed deal size increased 31.9% to $278.6 million.

The increase in value and average deal size is primarily driven by two megadeals in 2017 compared to zero in 2016. The two megadeals were in Auto-Tech segment accounting for $23.3 billion of deal value, or 43.9% of all disclosed deal value in 2017.

We define Auto-Tech as investments in connectivity, autonomous, electrification, ride-sharing and the software, sensors, intellectual property and other components that support these trends. Auto-Tech deal value increased more than fivefold from $5.3 billion in 2016 to $26.7 billion in 2017, primarily due to both megadeals in 2017 being Auto-Tech related. Auto-Tech deal volume was up 28.0%, from 50 deals in 2016 to 64 deals in 2017.

US acquirers spent $23.6 billion in 2017, or 44.4% of disclosed deal value. With recent tax reform in the U.S. and the expected repatriation of cash, we expect US acquires to drive M&A activity in 2018.

"Investments in connected, autonomous, and electrification made headlines and drove Automotive M&A activity in 2017. Despite the risk associated with these Auto-Tech investments, this trend will continue to drive deal value in 2018."

Jeff Zaleski Partner, US Automotive Deals Leader PwC

Trends and highlights

? Volume growth in 2017 was driven by the Others subsector while all value growth was driven by the Component Supplier sub-sector.

? Consolidation within the aftermarket and dealership segments is racing alongside Component Supplier segment driving M&A volume. Dealerships accounted for 26.4% of the total automotive activity, and 12.7% of activity related to transactions in the aftermarket segment. Increased deal volume in the Others subsector was driven by aftermarket and dealer consolidation.

? Value growth was driven by Component Suppliers, as deal value more than doubled to $40.7 billion in 2017.

? Both megadeals transacted in 2017, and 60% of the top 10 deals, targeted Component Suppliers.

Global Automotive M&A deals by disclosed value 2011 - 2017

250

1

450

$388

400

200

64

1

2

-

2

350

150

40

37

41

4 40

56

$279 55

300 250

100

$186

200

$214

$211

150

50

$161 $141

100

176 147 117 138 116 138 134 50

-

-

2011 2012 2013 2014 2015 2016 2017

5 bn

Average deal size (R-Axis) Source: Thomson Reuters

Deal volume of disclosed deal value Average disclosed deal value ($mn)

Highlights of 2017 deal activity

Disclosed deal value ($bn) Deal volume

M&A market activity improves

Deal value and volume in 2017 outpaced 2016, with M&A activity reaching the highest level since 2007 (604 deals). Total 2017 transaction value of $53.2 billion is up 29.9% from 2016, while 598 deals were closed in 2017, up 2.6%.

The Component Supplier sub-sector continues to drive M&A value growth while dealership and aftermarket consolidation is fueling growth in M&A volume.

Local deals continue to be attractive and make up a large share of the deal volume, however, a majority of deal value is attributable to cross border Auto-Tech deals.

Global Automotive M&A deal volume and value 2011 - 2017

70

594

591

60

543

50

490 465

700

583 598

600

500

40

400

30

300

20

200

10

100

$44.9 $30.2 $21.7 $38.7 $62.1 $41.0 $53.2

-

-

2011 2012 2013 2014 2015 2016 2017

Disclosed deal value

Deal volume (R-Axis)

Source: Thomson Reuters

Largest

transaction

Intel's $15.3 billion acquisition of MobileEye ? an advanced driver-assistance system providing warnings for collision prevention and mitigation, accounted for 28.8% of total disclosed deal value in 2017.

$15.3B

Megadeals ($5B and over)

2 mega-deals

There were two transactions in 2017 exceeding $5 billion (compared to zero in 2016 and four in 2015), making up 43.9% of total disclosed deal value. Both megadeals in 2017 were Auto-Tech related.

Automotive assembly

According to PwC Autofacts, the industry is expected to add 20.4 million units of production between 2017 and 2024 for a compounded annual growth rate (CAGR) of 2.8%. The majority of this growth stems from China with a contribution to growth (CTG) rate of nearly 43% (or 8.7 million units), followed by India with a CTG rate of nearly 12% (or 2.4 million units).

Assembly volumes (millions) Deal volume

Global light vehicle assembly outlook 2004 - 2024

120

900

110

800

100

90 80 70

515

584

594

604 549

532 520 594

543 490 465

591

583 598

60

700 600 500

50

400

40

30

300

58 63 65 69 66 58 72 75 80 84 86 88 93 94 98 103 107 109 111 113 114

20

200

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Global light vehicle assembly outlook

Automotive M&A deal volume

Source: PwC Autofacts 2018, Q1 Release

PwC Deals Global Automotive Deals Insights Year-End 2017

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Highlights of 2017 deal activity (cont.)

EV / Revenue EV / EBITDA

Transaction multiples

Disclosed transaction multiples for the automotive industry varied in 2017. The implied EV/EBITDA multiples for automotive transactions announced increased from 8.2x in 2016 to 9.6x in 2017, respectively. Additionally, the implied EV/Revenue multiples for automotive transactions announced stayed relatively consistent, dropping slightly from 1.2x to 1.1x in 2017, respectively.

Multiples are not available for all deals and historically may get revised as subsequent information becomes available. Although reported EBITDA multiples are higher for 2017, as more information becomes available, we believe valuation multiples were flat to declining in 2017.

Transaction multiples (median) 2015 - 2017

1.5x

11.5x

1.0x

0.5x

8.2x

1.4x

1.2x

0.0x

2015

2016

Source: Capital IQ

EV / Revenue

9.6x

1.1x

2017 EV / EBITDA

12.0x 11.0x 10.0x 9.0x 8.0x 7.0x

Venture capital activity

Global venture capital deal volume and value for all industries increased in 2017 by 10.5% and 49.5%, respectively. With 11,042 deals completed worth $164.4 billion, 2017 was a record-setting year for venture capital. While the Auto-Tech sector is only a small portion of global venture capital, venture capitalists are showing interest in investing in early stage enterprises focused on artificial intelligence, software, and other technologies in and around the mobility eco-system. Two Auto-Tech areas are receiving noteworthy capital from investors: ? On-demand transportation applications ? Received over $2.5 billion in venture capital funding in 2017 for the fourth consecutive year. Lyft

raised approximately $1.5 billion in 4Q17 alone, evidencing increased interest in ride sharing and autonomous vehicle programs. ? Electric and autonomous vehicles ? The most notable recipient of venture capital funds this year is NIO, a Shanghai-based start-up focusing

on designing and developing autonomous and premium electric vehicles, that raised $1 billion in 4Q17. Along with Component Suppliers and vehicle manufacturers, venture capitalists are also focusing on alternative powertrains that will drive the future of the automotive industry.

The car of the future will be electrified, autonomous, shared, and connected. Venture capitalists will continue to play an integral role of reshaping the automotive industry by injecting cash in early stage technologies and business models.

Source: CB Insights MoneyTree Report

Auto-Tech trends

Significant investments are being made in alternative powertrains, autonomous vehicles, ride sharing/mobility services, and online vehicle dealerships/trading platforms. Not only are traditional automotive companies acquiring tech companies, tech companies are acquiring traditional automotive companies and other Auto-Tech focused companies.

Deal value increased over fivefold from $5.3 billion in 2016 to $26.7 billion in 2017, as both megadeals in 2017 were Auto-Tech related. Deal volume increased 28%, from 50 deals in 2016 to 64 deals in 2017, primarily driven by Component Supplier activity. In 2017, the main focus in Auto-Tech were driver assistance technologies and alternative powertrains, which includes lithium ion battery manufacturing. In Asia, alternative powertrain companies were attractive assets in auto-tech, comprising 16 deals. The US, Europe, and ROW regions were the most targeted regions for driver assistance technologies.

Trade buyers dominated Auto-Tech deal activity, transacting 84.4% of Auto-Tech deals, compared to 15.6% of deals transacted by financial buyers.

PwC Deals Global Automotive Deals Insights Year-End 2017

2017 Auto-Tech deal volume (64 deals)

53%

41%

Tech acquiring tech Tech acquiring non-tech Non-tech acquiring tech

6%

2017 Auto-Tech deal volume by sub-category (64 deals)

11% 3% 8% 11%

25%

42%

Alternative powertrains Connected car Autonomous vehicles Online dealerships/trading Ride sharing Other

Source: Thomson Reuters

3

Sub-sector highlights and outlook

Sub-sectors highlights

While differences within the sub-sectors exist, each continues to see trends around expansion of technologies, consolidation, and expansion in emerging markets.

Deal volume

Component Suppliers

The Component Suppliers category includes companies who sell products to be used in the manufacturing of vehicles. With deal value of $40.7 billion, the strong performance of Component Suppliers marks an all-time high, compared to the last 15 years. In terms of deal volume, 194 deals were transacted in 2017, down 10.6% or 23 deals compared to 2016.

Globally, Component Suppliers continue their focus on Auto-Tech transactions as 40 Auto-Tech deals were completed in 2017, compared to 28 in 2016. Technology deals include, but are not limited to, connected car technologies, autonomous components, car/ride sharing applications, and alternative powertrains. The two largest deals in 2017 were Intel's acquisition of MobileEye and Samsung's acquisition of Harman International. We expect this trend to continue as evidenced by the recent announcement of ZF Friedrichshafen AG's acquisition of Beespeed Automatizari's automotive unit ? a leading supplier of automotive software development and testing and Continental AG's acquisition of EasyMile ? a provider of autonomous vehicle software and mobility solutions.

Although autonomous and mass penetration of electric vehicles is a decade away, these technologies will continue to drive deals in 2018, creating significant risk as the industry tries to figure out the technological winners and losers.

Component Suppliers M&A activity

2011 - 2017

45

350

40 303

300

35

236

250

30

220 202

217

25

190

194

200

$$-

$$5.4

$18.4 $-

$23.3

Disclosed deal value ($bn)

20

150

15 100

10

50 5

$10.2 $9.2 $12.1 $11.4 $14.4 $19.8 $17.4

-

-

2017 2016 2015 2014 2013 2012 2011

Non-megadeal

Megadeal

Deal volume (R-Axis)

Vehicle Manufacturers

The Vehicle Manufacturers category includes car, bus, motorcycle, commercial, heavy truck, and recreational vehicle assemblers. Deal value among Vehicle Manufacturers decreased 28.8% in 2017, however, deal volume increased 4.8%.

Two of the top 10 deals were in the Vehicle Manufacturer sub-sector, led by Huangshan Jinma's (producer of car bodies, molds, and electrical parts) merger with Yongkang Zotye Auto (privately owned automobile manufacturer) for $2 billion and Peugeot SA's acquisition of General Motors' European Opel brand for $1.2 billion. These two deals comprise 59.1% of Vehicle Manufacturer deal value in 2017.

Car and motorcycle manufacturer deal volume was largely flat from 2016 to 2017. The upward trend in deal volume for Vehicle Manufacturers is primarily driven by nine autonomous and electric vehicle manufacturers in 2017, compared to five in 2016.

Asian vehicle manufacturers comprised of 45.5% of Vehicle Manufacturer activity during 2017, compared to 50.0% in 2016. Specifically, China vehicle manufacturer activity comprised of 25% of all vehicle manufacturer activity during 2017. China's governmental influences continue to drive consolidation in order to reduce inefficiencies, lower overall costs, and develop new products.

Deal volume

Vehicle Manufacturers M&A activity

2011 - 2017

18

120

$-

Disclosed deal value ($bn)

16

14

97

12 86

85

$9.1

10

70

69

8

$8.9

$-

$-

6

42

4

2

$-

$-

100

80

60

44

40

20

$5.5

$7.7

$5.7

$7.7

$4.8

$6.3

$15.4

-

-

2017 2016 2015 2014 2013 2012 2011

Non-megadeal

Megadeal

Deal volume (R-Axis)

Source: Thomson Reuters

PwC Deals Global Automotive Deals Insights Year-End 2017

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Sub-sector highlights and outlook

Deal volume

Sub-sectors highlights (continued)

Others

The Others category includes retail, dealership, aftermarket, rental/leasing, distribution, repair/maintenance shops, and software for ride sharing. Driven by an absence of larger deals, including megadeals, the yearover-year decrease in deal value of 48.1% is the second year in a row of declining deal value.

Increases in deal activity for the Others sub-sector was primarily driven by aftermarket deals increasing, from 45 in 2016 to 76 deals in 2017. This is largely being driven by an aging car parc (cars are on the road longer resulting in growth in service and service parts). Dealership consolidation is also on the rise with a 26.4% increase from 133 to 158 deals from 2016 to 2017, respectively.

Europe led the Others sub-sector in terms of value and volume in 2017 with $4.4 billion (63.2% of sub-sector value) transacted in 133 deals. The most popular European target were dealerships with 48 deals, followed by repair and maintenance companies with 23 deals.

2016 Share of deal volume - Others

Others M&A activity 2011 - 2017

25

400

332

360 350

20

324

300

Disclosed deal value ($bn)

$6.3 $12.4

$-

250 15

238

200

205

193

10

157

150

$-

$-

$$-

100 5

50

-

-

2017 $7.0

2016 $13.5

2015 $11.2

2014 $5.2

2012 $5.9 2013 $4.9

2011 $12.9

Non-megadeal

Megadeal

Source: Thomson Reuters

Deal volume (R-Axis)

2017 Share of deal volume - Others

31%

41%

14%

14%

Dealership Aftermarket Repair & maintenance All others

19% 16%

44%

21%

Source: Thomson Reuters

2018 Automotive deals outlook

Vehicle manufactures, suppliers, technology companies, and venture capital will continue to invest in technology which will aim to disrupt the automotive industry and threaten traditional business models. 2018 will see continued investment in alternative powertrains, connected car technologies, ride sharing, artificial intelligence, and predictive analytics.

Given the global nature of automotive industry, we expect continued focus on cross border activity buoyed by a potential increase in Europe.

In the US, the long-awaited tax overhaul could inject companies and venture capitalists with additional cash to fuel M&A activity and megadeals. Even with interest rates increasing, the cost of debt remains historically low. Coupled with a strong economic environment and historically high profits will likely result in continued high valuation multiples automotive sector.

Asian buyers will continue to be active given further consolidation opportunities, market growth and expected regulations driving the need for alternative powertrain technologies.

PwC Deals Global Automotive Deals Insights Year-End 2017

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