DETROIT -- Investors acquiring auto companies are more likely to start by buying its debt than its equity, say financial analysts.
The stress on cash-strapped auto suppliers from the global sales slump has changed the rules in mergers and acquisitions, analyst Pat Flynn told a Society of Automotive Analysts meeting here today.
As traditional institutional lenders and banks have sharply cut loans to suppliers, hedge funds have stepped in. But those funds also have started to buy supplier debt as a way to acquire parts makers, said Flynn, managing director of the corporate turnaround firm Conway MacKenzie Inc. in suburban Detroit.
“Unlike banks, hedge funds are not afraid to own companies,” he said. “They may lend with an eye toward ownership.”
Analyst Chet Mowery of PricewaterhouseCoopers said the trend toward buying debt has emerged in the past 14 months as liquidity dried up for auto suppliers.
“Acquiring debt is a new way to acquire equity,” Mowery said. “The new trend is M&A via debt and M&A out of bankruptcy.”
Even companies doing a conventional equity purchase of a stressed supplier must deal “not only with company mangement but also debt holders,” Mowery said.
He added: “It's more like the Old West these days.”