Inside The Deal

Automotive M&A slowed in 2020 due to COVID-19, but recovery beckons


Shareholders give final approval to PSA-FCA Stellantis merger

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With more than 99% of votes in favour, PSA’s shareholders have finally approved its long-awaited merger with Fiat-Chrysler. GlobalData’s Mike Vousden writes.

GlobalData’s in-depth deals database tracks merger and acquisition activity across all major automotive players. In 2020, M&A deal values in the automotive sector were US$40.1bn at the end of Q4 – down by 42.1% versus 2019.

This is not a surprising result considering how hard the sector was hit in 2020 by the COVID-19 pandemic. Deal volumes improved in Q4 compared with Q3 (201 vs. 188) and deal values grew to US$10.6bn from just US$6.7bn in Q3. While Q4’s deal value represents an improvement over Q3, all figures are noticeably lower than pre-pandemic levels.

The largest completed deal of the quarter was Uber’s sale of its Advanced Technologies Group to autonomous vehicle developer Aurora Innovation for the equivalent of US$4bn.

Elsewhere, major announced deals included Luminar Technologies’ planned US$4.8bn IPO – one of a number of recent offerings facilitated by Special Purpose Acquisition Companies (SPACs) – in Luminar’s case Gores Metropoulos Inc.

As markets begin to recover from Covid-19’s impact, there is an expectation that deal levels could return to pre-pandemic levels as there is value in the market right now. Furthermore, SPACs are becoming increasingly active in the sector and are seen as a way for new entrants to efficiently list.

In 2020, Canoo, Fisker, Luminar, Velodyne and Arrival all listed via SPACs. With interest rates low, and investors looking for returns, SPACs could remain in vogue for equity raising for a good while. Like all previous quarters tracked by GlobalData, private companies accounted for the majority of deals.

In Q4 2020, private deals made up 93.8% of deals by count, compared with 92.7% in Q3, while also growing in volume from 164 to 182. The financial value of private deals also grew 64.3% from $5.6bn in Q3 to $9.2bn in Q4 2020.

Despite the slight drop in the number of public deals tracked in Q4 compared with Q3, the value doubled to $1.4bn. The share of deals categorised as small ($50m) remained mostly unchanged from Q3 to Q4, although there was a very slight increase in small-scale deals.

Of the large deals in Q4 worth more than $50m, 53% of them were categorised as very large deals worth in excess of $250m.

In a poll of GlobalData users, 85% said they expected to see an increase in industrial consolidation and M&A activity in the global automotive sector in 2021. While some of the increased activity will reflect an industry restarting after the Covid-19 outbreak, it speaks to an underlying expectation that many companies will eventually have to merge together to mitigate the extreme financial and competitive challenges presented by the four CASE megatrends – the connected car, autonomous vehicles, shared mobility and electrification.

Moving forward, the future of automotive M&A will be dominated by a number of themes. In the shorter-term, distressed companies battered by the Covid-19 pandemic will be ripe for M&A activity – driven by the combination of financial damage cause by the outbreak and the ready availability of investor finance, assisted by low interest rates.

In the medium and longterm, we expect the majority of automotive M&A activity to be centred around addressing CASE megatrends. These trends all require expensive and complex solutions, leading tech startups to seek investor finance and traditional auto players to look to enhance their capabilities beyond their core competencies.