Automotive Industry M&A Updated Q2 2019

Creating successful alliances

To maximize the probability of success, it is critical to clearly define the strategic direction for an alliance, joint venture, or partnership at inception. The following steps can help establish a framework for the JV journey:

• Define deal logic and strategic vision: Assess the deal rationale for the partnership or alliance, identify any top-down non-negotiables, and set key objectives for the combined business
• Set a clear win-win proposition: Assess the market position of both partners, define the target client portfolio for the partnership or alliance, outline product channels, and assess overlap with the parent companies
• Design target operating model: Set design principles (e.g. relationship with parent companies, customer- vs. product-driven setup), and define high-level organization and leadership
• Develop business plan and key metrics: Agree on the key business plan metrics and structure (top down/bottoms up), define the initial business case as a basis for valuation, and assess potential synergies
• Identify the integration & separation scope: Assess the key challenges and risks, identify the Day 1 operational “must-haves”, and the requirements to fulfill statutory, legal, and regulatory obligations
• Mobilize the venture: Setup the alliance team, define roles and responsibilities, establish governance and decision-making bodies, identify resource requirements, and publish the kick-off plan

By following this blueprint, alliance partners can define shared goals, establish a common understanding of what the collaboration is intended to achieve, and develop an organizational structure that will lay a strong foundation for success.

Automotive Q2 2019 M&A Synopsis

• Slight decline in deals compared to Q1 2019. The global automotive industry recorded 89 deals in Q2 2019, a slight decline over Q1 2019. Continuing trade tensions between U.S. and China and uncertainty over the Brexit deal have significantly influenced M&A activity in Q2 2019.
• Acquisitions continue to remain a key growth strategy for auto OEMs and suppliers alike. While alliances and partnerships are being considered as a potential alternative to full-scale mergers by major players, both acquisitions and partnerships seem to be driven by the desire to control costs and gain a stronghold in emerging technologies.
  • GM Cruise LLC, GM’s self-driving car unit, received $1.5 billion in investment from a group comprised of SoftBank Vision Fund,  Honda, and funds advised by T. Rowe Price.
  • Lear Corporation acquired Xevo Inc., an automotive software supplier that develops solutions for cloud, car, and mobile devices, to broaden its connectivity portfolio.