Crain's Detroit Business
The consolidation among makers of auto parts shifted into a higher gear during the first quarter of 1999.
There were nearly three times as many mergers and acquisitions as in the first quarter of last year, and the dollar value was almost six times as high.
Two of the quarter's largest deals - TRW Inc.'s $6.53 billion purchase of LucasVarity PLC and Lear Corp.'s $2.3 billion acquisition of UT Automotive - epitomized the trend of one billion-dollar supplier buying another.
To sum up the quarter, it was more deals and bigger deals.
'The large transactions are everywhere,' said David Strickler, head of automotive merger and acquisition research for Bowles Hollowell Conner Corp. of Charlotte, N.C., an investment-banking company that did the survey.
'Look at Lear's deal with UTA,' he said. 'Lear was big in seats, but it was weak in instrument panels. Now, with this deal, it is a significant player in making instrument panels, right there with Johnson Con-trols, Delphi and Visteon.'
PACE TO CONTINUE
In the first quarter of this year, 82 transactions valued at $13.74 bil-lion took place among parts makers that sell directly to the automakers or to retail sites. A year ago, there were 32 deals valued at $2.47 billion.
By comparison, Bowles Hollowell found that when carmakers and car dealers are counted, there were 163 deals valued at $28.3 billion in the first quarter of 1999. A year ago, there were 42 auto transactions with a value of $2.5 billion.
Analysts say the pace of supplier deals will continue to reach previously untouched levels, even if a recession occurs.
'The whole globalization process is stronger than ever, and economics won't change that,' said Robert Coury, managing director for the corporate finance group of Deloitte & Touche LLP in Detroit.
'The economy would change the price these companies go for, but suppliers see deals like Ford buying Volvo and they know they have to be global,' he said. 'That will push things more than the economy. Even in Japan, they are being driven that way. They are not immune from the pressure to be global.'
NORTH AMERICA DOMINATES
Coury and Strickler said the heated merger-and-acquisition pace will not slow for several years, especially as the auto consolidation picks up steam in other countries.
Most of the deals Bowles Hollowell tracked last quarter were North American automakers, suppliers or dealers buying another North American company. Of 163 automotive transactions last quarter, 89 were of that type.
Eventually, more European companies will look toward North America, Coury and Strickler say.
In nine deals last quarter, a European automotive company bought a North American company. By comparison, in 20 deals, North American companies bought European firms, such as Dura Automotive Systems Inc. of Rochester Hills, Mich., buying Adwest Automotive PLC of Great Britain.
'Right now, most of these deals are U.S. companies buying U.S. companies, with a little getting done in Europe but not much in Asia or South America,' Strickler said. 'That will change.'