Many West Michigan automotive suppliers are still considering selling their businesses or acquiring companies even after the flurry of M&A activity in late 2012. The problem: A lot of them are just too busy to work on deals.
Automotive supply chain observers say the interest in doing deals is still present. Most surviving suppliers’ finances have been buoyed by the auto industry recovery and owners feel they are finally in a position to sell, while other shifting generational dynamics are pushing aging owners to consider cashing out.
But because the industry is working at such a fevered pitch to meet increased production forecasts, many executives are finding their attention span for doing deals is limited.
Last year, companies looking to avoid higher taxes caused M&A activity to go “like crazy,” but it’s now returning to a more normal pattern, said Mike Wall, an analyst with IHS Automotive. It’s just that the normal pattern feels “sluggish” compared to last year’s hectic pace, he said.
An October 2012 Ernst & Young survey of automotive executives found only 27 percent of respondents in North America expected to pursue an acquisition in the next year, down from 40 percent in April of last year.
“I haven’t closed the book on M&A in this industry at all,” Wall said. “What I think you’re seeing is that some of those sale prices are starting to drive up a bit because the industry is doing well. There aren’t as many fire sale deals out there.”
But because vehicle production is increasing, executives are busy working on their own businesses and trying to meet aggressive volume targets, he said.
“There’s just so many competing priorities right now. They’re just trying to manage the business,” Wall said. “Do we have time to even think about this other bolt-on acquisition when we’ve got all of these other priorities?”
The industry’s improving fortunes could open opportunities for more private equity companies to enter the mix, either as they look to pick up strategic acquisitions or to divest companies they picked up during the downturn, Wall said.
Wall also sees fatigue playing a role in some owners’ decisions to sell. As automotive suppliers feel pressure to be more global, many business owners just don’t want to take on that risk and uncertainty. He said owners need to ask themselves if they’re comfortable ramping up efforts in international markets.
“Do you have that fire in the belly to go and explore Europe or Asia or South America? For some of those companies, it may be yes,’” Wall said. “For others, it may be, ‘Now is the time (to sell). I can get a good price for it and maybe I’ll go off and do something else.’ I think that’s going to be a key decision that will be made company by company.”
Each company needs to evaluate its own unique set of circumstances, he said.
“If they’re profitable and throwing money down to the bottom line and maybe they have a second generation or third generation coming down the pike that is interested in running the business, they may not be all that enthused to sell,” Wall said.