Small- and medium-sized European auto suppliers have failed to deliver the performance expected by financial markets over the past few years, says Klaus Pflum, head of the automotive investment banking team at Deutsche Bank.
In the early to mid-1990s, European auto suppliers were widely tipped to lead a wave of flotations, mergers and takeovers that would reward investors.
Analysts and financial institutions said small- and medium-sized suppliers would expand their markets and cement global alliances by raising capital from flotations.
But Pflum says the flotations - known as IPOs, or Initial Public Offerings - among European suppliers have been disappointing. Many suppliers have not grown at a rate that would allow them to keep pace with the automakers.
'A lot of these companies get no attention from investors, especially the ones below A1 billion market capitalization,' says Pflum. 'Even very successful companies like Beru (see story on page 34) are too small for fund managers to spend time getting a detailed understanding of their strengths. Beru is rated only slightly better than the sector as a whole.
'Companies have to be the size of Continental or Valeo to be on the radar screen of most investors in quoted companies,' says Pflum. 'The financial markets do not really recognize the value of the smaller quoted companies.'
There have also been fewer opportunities for European companies to expand into Asia and North America than looked likely two or three years ago. Some North American companies that had been for sale were withdrawn from the market when it became clear that the prices being offered did not meet expectations.
Also, 'the industry has been slow to adjust to the merger and acquisition culture in Japan,' says Pflum. 'Only now are the bigger European suppliers such as Valeo attracting major contracts in Japan.' In Valeo's case, this is largely because of the Renault/Nissan deal.
But there's still a way forward for smaller European suppliers, says Pflum: 'The only way for these companies to raise additional finance to globalize is to take themselves private again,' he says. 'They should get together with financial investors or merge with other groups until they reach a size that makes them more attractive to the capital markets.'
Pflum says this would enable the smaller European suppliers to transform their businesses at the pace required by the automakers.