PRTM: Chinese suppliers gaining ground in the M&A space

Data, Suppliers | | September 14, 2011 at 6:10 pm

SHANGHAI – According to a recently released study by global management consultancy PRTM, Bankruptcy and Consolidation in the Global Automotive Supply Industry 2011, Chinese suppliers have become increasingly important M&A players, accounting for half of the top 10 acquisitions this year.

Chinese buyers executed half of the 10 largest deals in the last 12 months, and are likely to account for a growing share of global M&A deals. Donfeng’s pending $700 million (30 percent) acquisition of German transmission manufacturer Getrag will be the second biggest global deal of the year. Other targets include technology plays such as Nexteer Automotive, the U.S. maker of steering and driveline products; Germany’s SaarGummi, a sealant manufacturer; and Netherlands-based Inalfa, a roof systems maker. Since 2006, most Chinese M&A activity has involved powertrain systems. During this period, there were 48 acquisitions involving Chinese suppliers, including 13 where non-Chinese suppliers bought Chinese suppliers and two where Chinese suppliers bought suppliers in other regions.

Likely consolidators and divestors

It might have been tempting to write off North American suppliers given their financial distress and spate of bankruptcies over the past few years. But after their performance stabilized last year, North American suppliers have come roaring back (Figure 1). Since last year, sales are up 20 percent and EBITDA has improved by a stunning 68 percent. While all North American suppliers had strong regional buyer scores, those in the Global 100 were particularly strong. Nine North American suppliers are among the top 25 buyers in this year’s Global 100 list. This resurgence – a throwback to pre-recession levels—shows that North American suppliers reduced capacity and cost, benefited from the modest U.S. market recovery, and are focusing on the right OEMs and the right markets.


With a 14 percent uptick in sales, European suppliers registered an even greater improvement in EBITDA than their North American counterparts – up 76 percent from the previous year. All five European suppliers that made last year’s top 25 potential buyer list are on the list again this year. Larger European suppliers that are part of the Global 100 show much stronger buyer scores than their counterparts. At the same t

ime, four smaller European suppliers were among the 10 that experienced the greatest decline in sales among all 565 suppliers surveyed. The big performance variations across European players suggest that the European supply market still has considerable room for consolidation.

This year’s study analyzed some 90 Chinese auto suppliers, almost double the number covered in the 2010 report. Among the dozen that qualify as China’s top potential buyers, nine are most likely consolidators. Three of these most likely consolidators are also Global 100 suppliers: top-ranking Weichai Power, Wanxiang Group, and Yuchai Group (Figure 2). Interestingly, all but Weichai Power and Minth Group are newcomers to the top 12 potential buyers list. Five of the ten newcomers appear because of the study’s expanded scope this year, a demonstration of the increasing depth of the financially strong Chinese supply base.


As in 2010, the likeliest potential divestors represent a “who’s who” of the supplier industry. Many are seeking to optimize their portfolios to achieve a better strategic fit. Others, especially many large European suppliers, are potentially distressed. Chinese suppliers on the other side are the least likely to divest and they are the least distressed of all. That said, many may still be “buy” targets for global consolidators that are looking to gain market access or to acquire a low-cost base of manufacturing or engineering.

The study also forecasts that of the six main vehicle systems, powertrain and chassis systems face some of the greatest consolidation pressures. For example, among the 266 powertrain system and components suppliers globally, one in four is a potential divestor or vulnerable company.

A closer look at powertrain systems reveals that some subsystems are more prone to consolidation than others – notably engine electronics, injectors, and transmissions. 

Rise of China means being “global” is different

Looking ahead, success for suppliers will depend on heft and global orientation. Gone are the days of the $100 million supplier and of serving a primarily domestic market. Vehicle platforms have become increasingly global; often based on 70 percent common global parts, or at least common global engineering solutions. Mid-sized and larger suppliers must become increasingly global to serve the top ten auto makers and to seize market opportunities – including those in China, the world’s largest and fastest growing auto market. Suppliers possessing global and regional engineering prowess, as well as low-cost, flexible manufacturing capabilities, are poised to win.

As China’s ascendancy in both auto production and sales continues, suppliers everywhere will have to adjust their focus and practices. In particular, they must:

  • ·       Learn how to compete for business with global joint venture OEMs and rapidly consolidating domestic “mega vehicle” manufacturers in China.
  • ·       Evaluate product offerings to meet the needs of the next generation of Chinese customers, whose requirements are different than those of European, Japanese, and U.S. auto makers.
  • ·       Right-size their capacity in high-cost, stagnating markets, and become more flexible to adjust for shifting consumer preferences in vehicle segments and brands.
  • ·       Increase capacity in China for sales to global and domestic car companies, as well as for global production where it makes sense.
  • ·       Develop processes and systems that link customer demand to all supply tiers to more effectively coordinate global supply chains and collaborate with OEMs.

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