Automotive insights

Automotive downstream sector acquisitions: October 2017

Paul Burrows Paul Burrows

The automotive downstream market is increasingly showing strong levels of acquisition, as companies seek to consolidate their position in the UK and Europe.

The focus of merger and acquisition (M&A) activity has previously been on the automotive retail markets as publicly-listed companies consolidated to gain market share and enhance quarterly earnings. However, attention is shifting to the downstream market and the parts distribution, body shop, and vehicle leasing and rental markets are now also showing very strong levels of consolidation.

Interest from buyers in each of these sub-sectors has been broad, with both trade and international buyers both taking advantage of the Sterling’s current weak status to acquire long-term investments in the UK market.

Automotive retail

There have been over 20 notable public acquisitions during 20171, but the question of just how the automotive retail market will look in coming quarters still remains, especially considering that the underlying new vehicle registration market has performed poorly for the last six months.

September once again showed a decline in the number of new commercial and passenger vehicle registrations, exposing a risk that the new vehicle market would not reach the SMMT forecast for the 2017 year end. With the continued decline in October, it subsequently reduced that figure from 2.594 million units sold, down to 2.565 million2. Still, the UK market is still experiencing its third best year, and at present the used vehicle market is strong and stable. In fact, rising prices due to a short supply of used vehicles have helped the market to thrive, an effect that is hoped to last into 2018.

The strong performance of the used vehicle market has meant that both private operators and plcs have increased their activity in the sector, hoping to take advantage of the area's growth. The used vehicle market is continuing to remain positive, while the new registrations market is in decline. It’s likely that the automotive retail market will continue to consolidate in the short term at least, with plcs and international operators each earning more market share.

The extent to which vehicle OEMs will allow plcs to take a greater market share or work with international players remains unclear. Brands such as Ford, Vauxhall and Mercedes Benz, however, have already shown that they want to develop their businesses by working with the likes of Motus and Lei Shing Hung. It would appear that OEMs are recognising that they need to work more closely with overseas operators and acquirers as the automotive retail market becomes more global.

Part distribution

Part distribution M&A activity has been high in the UK over recent months. Several sizeable acquisitions have occurred thanks to international expansion and an amount of opportunism from overseas parts distributors wishing to move into the UK and European markets.

Two of the biggest acquisitions are The Part Alliance changing hands from HG Capital to Uni-Select for £205 million and Genuine Parts Group's purchase of Alliance Automotive Group from Blackstone for US$2 billion (including Alliance's outstanding debts). After the change of hands, The Part Alliance moved to acquire BBC Superfactors, boosting its parent company's exposure in the UK and Europe.

Vehicle leasing and rental

The vehicle leasing and rental market has been busy over the last six months, with a number of high-profile acquisitions and disposals.

September saw Marshall Motor Holdings Plc sell its leasing company to NIIB Group Limited for £42.5 million in a move designed to consolidate its standing in the UK motor retail market. Marshall Motor Holdings Plc is now focusing on what it sees as its core business, automotive retailing. Similarly, TOM Group Limited acquired Transfleet Limited in order to add to its commercial vehicle operation.

Elsewhere, there was also consolidation in the smaller sub-sector markets, with Essential Fleet Services taking on the heavy plant machinery company GoPlant. In overseas fleet, leasing and rental market news; Comfortdelgro (Singapore’s largest taxi operator) acquired City Fleet Network Limited, a taxi company.

Conclusion

It's fair to say that consolidation in the automotive downstream industry is looking healthy, thanks to trade buyers, international buyers and PE houses all trying to enter the market.

The UK economy is still slowing due to political and economic uncertainty, and with the risk of rising interest rates in November it could be that volume of transactions decrease. However, that doesn't chime with the trend we are currently seeing, as investors are still looking to further their earnings and growth through acquisitions.

Please contact a member of our automotive team for advice and assistance on the purchase or sale of automotive retail assets. Please see contacts for details. 

Sources:

  1. AM-online, acquisitions and deals
  2. SMMT, Vehicle Data