Home Contact Where to find us Help German


M&A activity likely to intensify in the supplier industry

  • Metzler: Consequences of the VW scandal for the supplier industry greatly limited
  • However, tighter requirements and new rivals point to an increase in consolidation among automobile suppliers

"Comparable automobile scandals in the past do not suggest that there will be a plunge in sales of diesel vehicles as a consequence of the VW scandal" – this is the conclusion drawn by M&A expert Hans Günter Wolf, Managing Director of B. Metzler GmbH, on the repercussions of "Dieselgate" for the automobile (supplier) industry as a whole during a press briefing at Metzler Bank in Frankfurt/Main, Germany. Wolf believes that diesel vehicles will play an important role for the foreseeable future, at least in Europe – due, among other things, to the ambitious emissions targets set by the European Union which, at present, can only be achieved for the automobile industry with diesel technology. In contrast, Wolf’s colleague Volker Ruhl, Vice President of B. Metzler GmbH, adds that the share of diesel vehicles in new cars in the rest of the world will decline further on account of specific national background conditions. Diesel fuel is politically subsidized in Europe while in the USA it does not have any particular price advantage and is viewed by customers in a critical light. All in all, Metzler’s M&A experts believe that diesel technology still has a future but expect to see an acceleration in the transition to e-mobility and alternative drive technologies such as hybrid, hydrogen and fuel cell. However, a mass market for electric cars is not likely to evolve before 2035.

According to Wolf and Ruhl, the relatively limited repercussions of "Dieselgate" are also reflected in the capital market. For example, stock market prices of OEMs (Original Equipment Manufacturers) and suppliers have risen again noticeably between September 2015 (i.e. directly before the exposure of the VW scandal) and December 2015. A comparison between the consensus estimates on sales and EBIT 2016e before and after diesel became an issue reveals that a margin decline is expected at supplier level while the consensus estimates for sales in 2016 remained relatively unchanged.

Ever tighter demands on automobile suppliers

According to the Metzler experts, the greatest challenges facing the automobile suppliers lie else­where – most notably in future topics such as digitalization, connectivity and autonomous driving, areas that will create a more complex task spectrum and, by extension, generate higher R&D costs. At the same time, savings of VW of approximately EUR 3 bn p.a. and the market penetration of new rivals from the technology and software sectors will step up the price pressure, Wolf continues. In circumstances of this kind, great differences can be noted in the risk-return profile of automobile suppliers with, in the words of the corporate finance specialists, more winners than losers expected overall – on the losing side of the scale, suppliers of diesel components with a high VW exposure (above-average risk and below-average opportunities) and on the winning side the niche suppliers with high innovative strength (high opportunities but also high risks). Suppliers of high-performance retrofitting technologies are likely to profit in the short term from the VW scandal. Pure suppliers of combustion engine technologies and metal products could, according to Ruhl, experience problems in the medium to long term if they fail to diversify their business portfolios – this is because carmakers, as part of their platform strategy, are concentrating more and more on a few, greatly-diversified suppliers.

M&A activity expected to intensify in the face of higher consolidation pressure

According to Wolf’s estimate, "Dieselgate" has contributed towards boosting certain global trends at the expense of the automobile supplier industry. Examples are cost reductions on the part of the car­makers at the expense of the suppliers, shorter development times, mounting costs for research & development and growing demands for a global presence. The Metzler experts forecast an intensifi­ca­tion in consolidation pressure among the suppliers which will culminate in M&A transactions. Based on selected transactions in the automobile supplier sector from 2013 to 2016, it is possible to note that recent acquisitions were above all technology-­driven – with the acquiring companies show­ing particular interest in buying expertise in next-generation technologies. This clearly confirms that, more than ever before, suppliers of innovative, next-generation solutions in particular are attracting great interest among the Top 20 market leaders in Germany. This interest is particularly focused on compa­nies with special expertise in fields such as the Internet of Things, electronics and comfort, e-mobility as well as emissions reduction and efficiency. Equally in demand as takeover candidates are niche suppliers with high-margin products; however, as Ruhl finally adds, these attractive target companies are not under any short-term pressure to sell, so that a purchase of this kind would be associated with far higher hurdles and prices.

Press contact:
Jörg-Matthias Butzlaff
Phone (+ 49 69) 21 04 - 49 75
E-mail MButzlaff@metzler.com