Cash-flush buyers fuel big rise in '15 mergers

A prosperous auto industry that generated lots of cash last year also spurred a lot of dealmaking.

In 2015, the value of mergers and acquisitions reached a 16-year high as automakers, suppliers, dealers and automotive lenders bought and sold assets worth $62.1 billion in 591 transactions, according to a study by Strategy&, a consulting business launched by PwC.

That's up sharply from the previous year, when global mergers and acquisitions totaled $38.7 billion in 543 deals, said the study's author, Jeff Zaleski, a PwC partner in Detroit. Last year was the auto industry's biggest for mergers and acquisitions since 1999, when transactions totaled $71.3 billion.

And 2016 shapes up as another big year for dealmaking, given the likelihood of strong U.S. light-vehicle sales, as well as other factors, Zaleski said.

"We continue to see activist shareholder pressure," he said. "Even if interest rates go up, the rates are still reasonable. Absent a geopolitical economic shock, we expect a strong year in 2016."

Zaleski said last year's dealmaking activity was fueled by "strong CEO confidence going into the year, strong forecasts for vehicle volumes and a continued thirst for corporate growth."

Other factors included strong corporate balance sheets, low interest rates and activist shareholders who pressured companies to dump their noncore operations. Yet another lure was technology for infotainment, fuel-efficient vehicles and self-driving cars, according to the study.

That last item influenced German auto supplier ZF Friedrichshafen AG to buy safety systems supplier TRW Automotive Holdings Corp. for $12.5 billion, easily the biggest deal of the year. But that wasn't the only blockbuster. Last year there were 12 megadeals worth at least $1 billion, up sharply from the six megadeals completed in 2014, according to the study.

"Buyers with cash on their balance sheets were looking to make a statement, and they did so with larger deals," Zaleski said.

Deals completed in 2015 that involved well-known names included BorgWarner Inc.'s $955 million acquisition of Remy International Inc., AB Volvo's purchase of 45 percent of Dongfeng Commercial Vehicles Co. for $902 million, Lear Corp.'s $850 million acquisition of Eagle Ottawa, and the $5.9 billion transaction that gave China National Chemical Corp. control of tiremaker Pirelli.

The dealmakers primarily were suppliers and "others," a group that includes dealership groups, leasing companies, aftermarket service providers and financial lenders.

In fact, the "others" category generated 332 deals last year, up 40 percent from 2014. Moreover, the value of those deals totaled $23.6 billion, up 349 percent from the previous year, according to the study

By contrast, the number of acquisitions by suppliers declined 14 percent to 190 deals. But the collective value of those deals jumped 96 percent to $32.9 billion. There were also 69 deals involving vehicle manufacturers; their total value was $5.7 billion.

Some other trends noted in the study: American companies are an attractive target for Asian and European buyers because the U.S. light-vehicle market is so strong. Last year, foreign companies bought 23 U.S. companies worth a collective $24.5 billion.