Yemisi IzuoraHogan Lovells has unveiled its fourth quarter Deal Dynamics cross-border M&A data, reporting that the automotive industry – buoyed by developments in new technology – was 70 per cent above the quarterly average in a decade.
The data also shows that fourth quarter deal value reached US$26.5 billion, bringing total 2018 deal value to US$71.3 billion; 41 per cent lower than 2017. 316 automotive deals were announced in 2018, down 22 per cent from last year.
“Despite the drop in figures, it is clear to us that we are in the midst of an auto-tech revolution. Competition to develop new technology will continue to drive M&A in the automotive industry in 2019,” said William Yavinsky, partner at Hogan Lovells and Co-Chair of the firm’s Automotive and Mobility M&A Group. “Even though there remains a degree of uncertainty due to tariff and regulatory concerns, as well as economic uncertainty, dealmaking is not slowing down”.
The widespread adoption of electric vehicles, mapping software, artificial intelligence, and the advent of autonomous and connected vehicles are examples of the continued melding between the automotive and technology sector. The blurring of industries has also increased cross border transactions this year, particularly with the United States, the UK, and France being the most acquisitive. While this year 1.3 percent of deals were U.S./China cross-border deals, given the increased scrutiny from the U.S. government of investments from China, it will be interesting to see if there is a shift in focus.
“We are seeing a more dramatic shift to strategic alliances, joint ventures, and innovative acquisitions,” said Richard Horan, partner at Hogan Lovells and Co-Chair of the firm’s Automotive and Mobility M&A Group. “Those types of arrangements were less prevalent in the days of intense direct competition among manufacturers and less collaboration. We will likely see more creative partnerships to address rising protectionist sentiment, rules around data protection, and legislation.”
Speaking specifically on the impact of Brexit on the auto sector, Sarah Shaw, partner at Hogan Lovells said: “Brexit creates a number of challenges for the UK’s automotive industry. The industry relies heavily on unrestricted access to the EU single market, with the UK’s supply and trade channels intrinsically linked with those of the EU. The majority of cars produced in the UK are exported to the EU and 79 percent of all parts used in the manufacture of UK cars are imported from the EU. All of this relies on the principle of ‘just in time manufacturing,’ which requires there to be frictionless borders. A no-deal Brexit could therefore have serious ramifications for the industry.”
For Europe, Nikolas Zirngibl, partner at Hogan Lovells added, “There is no doubt European car manufacturers are also being challenged by new players in the industry, both by technology companies from the U.S. as well as manufacturers from Asia. To remain leaders in the game, they know they must cooperate with each other – both the old European players as well as with the new U.S. and Asian players – this will open up multiple M&A opportunities.”