FRANKFURT (Bloomberg) -- Continental AG and Faurecia SA may drive mergers and acquisitions in Europe's auto-components industry after a two-year slowdown as private equity companies scout for deals.
Transactions involving European auto-parts manufacturers as targets may total as many as 85 this year, a 13 percent jump from 2009, after 50 deals in the first eight months, said PRTM, a consulting firm based in Waltham, Massachusetts. The total value may fall short of the $9.2 billion recorded last year, when Schaeffler Group paid $6.5 billion for a stake in Continental.
“After the crisis, M&A markets are opening up again,” Juergen Geissinger, CEO of Schaeffler, said in an interview. “Companies become less cautious about where to invest their capital -- and that brings new activity.”
In Europe, the push to consolidate is reinforced by the gradual withdrawal of government-backed scrapping incentives that softened the collapse of car sales during the crisis and are now hampering the recovery. Pressure for link-ups is greatest among makers of chassis parts, transmissions, seats and door panels – businesses where suppliers are small and potential buyers abundant, PRTM said.
Globally, supplier acquisitions may total 300 in 2010 after 241 last year, according to a PRTM study, which examined data and executive comments to assess the potential roles of 560 automotive suppliers as buyers, sellers or financially distressed companies. Industrywide, 108 deals took place through May, the fastest pace in nine years.
Seat belts, fuel tanks
Among Europe's largest auto-parts deals in 2010 is Plastic Omnium SA's $333 million buyout of Inergy Automotive Systems, the world's largest maker of fuel tanks for cars, announced in June. Autoliv Inc., the No. 1 maker of automotive airbags, took full control over Estonian seat-belt maker AS Norma in April for $48 million.
“The signs are positive, with people getting more access to liquidity than they had before,” Dietmar Ostermann, head of PRTM's automotive practice, said by telephone. “The private-equity market is all over this space right now and has looked at targets -- now it's time to act.”
One Equity Partners, JPMorgan Chase & Co.'s private-equity arm, may increase its 13 percent stake in Faurecia, Europe's biggest maker of car interiors, PRTM said. A deal may further reduce French carmaker PSA/Peugeot-Citroen SA's 57.4 percent holding in Faurecia. One Equity took on the Faurecia shares last November in exchange for the New York-based fund's holding in U.S.-based Emcon Technologies.
At the same time, Faurecia may dispose of its engine-cooling business, according to the PRTM study.
Max Hohenberg, a spokesman for One Equity Partners in Munich, declined to comment, as did a Faurecia spokesman.
The French company agreed in June to buy four additional plants from Plastal GmbH after taking on some assets earlier this year from the insolvent German plastic auto-parts maker.
Passenger-car registrations in Germany, which phased out subsidies last September, slumped 29 percent in the first eight months. Germany's 5 billion-euro ($6.5 billion) fund to encourage consumers to trade in older cars for smaller, more fuel-efficient models ran out last September.
Europe's light-vehicle market will shrink 3.5 percent this year, while the U.S. grows 10 percent and China surges 23 percent, according to forecasts by IHS Automotive. The divergence is seen persisting next year, when Europe will likely gain 1.8 percent, the U.S. 13 percent and China 8.2 percent, the U.S.-based researcher said.
European industrial overcapacity will also fuel consolidation, said Vinzenz Schwegmann, who heads AlixPartners LLP's auto team in Europe. “The crisis has not really driven capacity reduction in Europe the way it did in the U.S.,” he said in an interview.
Schaeffler, the Herzogenaurach, Germany,-based supplier that controls about 75 percent of Continental and eventually plans to merge the two companies, may force asset sales at the tiremaker to help reduce Continental's 8 billion euros of net debt as of June 30, PRTM's Ostermann said. The truck-tire business and ContiTech rubber-parts unit are possible candidates, he said.
The two division may fetch a combined value of 2.5 billion euros, said Aleksej Wunrau, an analyst at BHF-Bank AG in Frankfurt who recommends buying Continental shares.
There are no plans to leave any part of the two companies outside of a merged business, Geissinger said Sept. 1.
Valeo SA, a French supplier whose product range spans headlamps, air-conditioning and hands-free parking systems, may sell its windshield wipers division to focus on fuel-saving technologies, the consulting firm said.
The company, which said in March it aims to keep all divisions that achieve sales growth and a 20 percent return on capital, sees itself as a buyer rather than a seller, spokeswoman Kate Philipps said. “There are no particular businesses for sale, and we're confident that all divisions can meet the criteria,” she said by telephone.
Many of the deals may focus on smaller, privately held companies, according to Michael Muders, who manages about 500 million euros in European stocks at Frankfurt-based Union Investment.
“We're expecting consolidation, but we don't necessarily think it's going to affect listed companies,” said Muders, who owns Continental shares. “Those companies have seen a relatively strong recovery, and Continental for example is back on a solid earnings path, which helps them cut debt.”
Continental returned to a profit in the first quarter and posted second-quarter net income of 121 million euros after cutting thousands of jobs and reducing development spending.
Behr GmbH, a German thermal-parts maker, may be forced to dispose of some engine-cooling or air-conditioning activities, PRTM said. Hella KGaA Hueck & Co., a headlamp maker, is also likely to sell some assets, the consultant said. Both companies are privately held.
The number of auto parts deals globally peaked at 338 in 2007 before falling to 294 in 2008 and 161 last year, according to data compiled by Bloomberg. The value of the mergers in the past two years, excluding government-sponsored deals involving General Motors Co. and Delphi Corp., was less than $18 billion a year after the 2007 peak of $46 billion.
Other possible buyers include Eaton Corp., Johnson Controls Inc. and investors such as Texas Pacific Group and Cerberus Capital Management LP, according to PRTM. Sellers may include Hitachi Ltd., Visteon Corp., TRW Automotive Holdings Corp. and Delphi.