Suppliers prepare for growth, allocate more funds for M&A
Companies seek to dominate product segments, beef up r&d
North American suppliers are budgeting more funds for mergers and acquisitions as they seek to boost market share and expand product lineups.
According to a July survey of suppliers by the Original Equipment Suppliers Association, 43 percent are budgeting more money for mergers and acquisitions during the next fiscal year, while just 2 percent are budgeting less.
Forty-eight percent said there was a high or moderate likelihood of an acquisition, while just 9 percent expected to divest assets.
The survey drew responses from 93 suppliers with operations in North America.
For the North American market, 19 percent said their top priority for an acquisition was to build market share. Thirteen percent cited the need for new technology, and the remainder named other goals.
The OESA survey comes at a time when suppliers are bulking up to dominate their product segments, follow customers into new regions and beef up r&d.
For suppliers that don't have the luxury of time, a well-timed merger or acquisition can offer quick access to new products, technology and geographic regions.
A report from PricewaterhouseCoopers appears to confirm this trend.
The PwC survey estimates the likely value of automotive merger and acquisition transactions this year at $15 billion, up 25 percent from last year, according to Bloomberg.
And that doesn't include ZF Fried-richshafen's proposed acquisition of TRW Automotive Holdings Corp., a deal valued at up to $13 billion.
"Buyers are attracted because of the long-term worldwide growth trends, which benefit the suppliers," said Dietmar Ostermann, the Detroit-based head of PwC's global auto advisory practice, in an interview with Bloomberg.
TRW is an attractive target because it has a portfolio of sophisticated anti-collision technology. The company produces radar, cameras and other components needed to produce autonomous cars. That would allow ZF, a powertrain specialist, quick access to the fast-growing segment.
Which leads to the question: If TRW is a takeover target, what about other suppliers of anti-collision technology? One industry analyst has speculated that Delphi would make a nice target for Samsung.
During an Aug. 6 interview, Jeff Owens, Delphi's chief technology officer, said he doesn't expect a major player in consumer electronics -- such as Samsung, for example -- to enter the automotive market by making a big acquisition. It takes time for automotive investments to pay off, and most players in consumer electronics don't have the patience, Owens said.
Perhaps not, but the OESA and PwC surveys suggest that suppliers have money in their pockets, and they are looking for ways to spend it.
You can reach David Sedgwick at email@example.com.