The consolidation among automotive suppliers continued its swift pace during the first quarter.
And the movement could shift into an even higher gear through the rest of the year in the wake of the proposed DaimlerChrysler AG merger.
The dollar volume of deals announced or closed reached $2.2 billion, up 70 percent from the $1.3 billion completed during the first quarter last year, according to an analysis by the investment banking firm Bowles Hollowell Conner & Co. of Charlotte, N.C. The data primarily include North American manufacturers acquired by U.S. or overseas companies.
One deal that didn't happen would have made the first quarter even more active. SPX Corp. of Muskegon, Mich., had made a hostile $3 billion offer for Echlin Inc. of Branford, Conn. In May, Echlin agreed to be acquired by Dana Corp. of Toledo, Ohio.
'We're seeing no slowdown at all,' said Coco Dawson, a Bowles Hollowell industry research associate. 'The DaimlerChrysler deal will only fuel the consolidation, because the combined company will want to deal with fewer suppliers, and they will want more in terms of complete systems. Most important is the pressure they could put on suppliers for pricing.'
More large deals are expected as well, said Clifton Roesler, an investment banker at W.Y. Campbell & Co. in Detroit. 'I would anticipate that the gross dollar volume of acquisitions will increase as deal sizes get larger and smaller suppliers are squeezed out of the acquisition game,' he said.
The acquisition business is so great that W.Y. Campbell itself expects to broker deals valued at more than $1.2 billion this year, Roesler said.
The quickening pace also appears roughly to track the upward run in the stock market. That is because many acquisitions today are equity-swap transactions that use stock as currency. As companies' stocks rise, so does their buying power.
A primary example is Lear Corp. of Southfield, Mich. During the first quarter, it announced its planned acquisition of Delphi Automotive Systems' seating business. Analysts say Lear has been a model for many suppliers that have restructured to enhance their ability to sell systems instead of individual parts, where there is less profit.
The company's stock price since it went public in April 1994 has gone from a low of $16 a share to last week's $48 range.
Since Lear's 1993 purchase of the Ford Motor Co. seating business, the company has announced or made 12 acquisitions. That does not include a 1997 Lear joint venture with Donnelly Corp. of Holland, Mich.
Those acquisitions helped raise Lear's market capitalization from $2.3 billion in 1996 to $3.2 billion last year. At the end of the first quarter of this year, the figure was $3.8 billion, according to the company.
Bowles Hollowell also found that the number of deals during the quarter exceeded the year-ago volume by 52 percent. There were 38 recorded transactions, compared with 25 during the same period in 1997.
Total estimated sales of the target companies were about $8.8 billion for the first quarter, compared with $1.6 billion in the same period a year ago. Among the largest deals were those assembled by Federal-Mogul Corp. of Southfield, Mich.
Federal-Mogul bought North American gasket maker Fel-Pro Inc. of Skokie, Ill., for $717 million. Last year, Federal-Mogul announced the acquisition of under-the-hood products manufacturer T&N PLC of Manchester, England, for $2.42 billion.