Green machine – auto efficiency in M&A focus
Published January 2016
The recent VW emissions scandal has once again shifted the spotlight back on the automotive green agenda. Company strategies centered on emissions reduction, fuel efficiency and the environment have been clear. However, these points are now filtering down to M&A rationale as corporates look to meet legislation, as well as gain competitive advantage.
The ‘green machine’ rationale was apparent in a number of deals announced last year: in July Canadian auto supplier Magna International acquired Getrag, a German manufacturer of transmissions technology that helps cut emissions (€1.75bn); Japan-based Nidec bought German electric pump specialist Geraete- und Pumpenbau (€310m), a company profiting from the rapid growth of idling-stop vehicles; and China-based AVIC Electromechanical Systems acquired powertrain technology, emission control and fuel efficiency specialist Hilite International ($644m).
Recent press has also reported sale processes in the pipeline as shareholders look to capitalise on superior valuations for scarce, scale en-vogue assets. Among others private equity-owned Punch Powertrain, a Belgian manufacturer of transmissions that reduce emissions and boost fuel efficiency, attracted interest from BorgWarner, Aisin Seiki and JTEKT, while German-based Eberspaecher (exhaust systems) is being targeted by both trade and PE. In general, PE interest in the auto sector has been revitalised through the increased use, and value, of technology and efficiency products, for example, Bain Capital’s acquisition of fuel delivery specialist TI Group Automotive Systems from Oaktree Capital ($2.4bn).
Moving away from the world of components, segments such as light-weight materials could also see consolidation driven by the emissions reduction trend. In this space, Belgium-based Solvay announced the acquisition of Cytec, a US-based specialty materials business, for $5.5bn in July. As the tightening of regulations leads to stricter rules for monitoring vehicle emissions, demand for testing and inspection services and products is also likely to increase. Here, UK-based Coryton Advanced Fuels, which supplies precise test fuels to OEMs and other specialist customers, took investment from Lyceum Capital in September.
Vehicle emissions has been a prominent theme in recent decades and events at VW have brought into focus the cost of getting it wrong. We therefore expect to see demand from both trade and financial acquirers for strong companies with emissions reducing products or services.