• Technology disruption and overseas expansion drives M&A landscape in Indian automotive sector, says Grant Thornton ACMA report

Indian automobile industry has been opting for the inorganic route to balance investments to support current growth cycles and prepare for future global disruptions. According to Grant Thornton ACMA report - M&A in auto: Shifting gears to be future ready, Merger & Acquisition (M&A) deal volumes in the Indian auto space have remained steady with 18 announced transactions in YTD 2018 worth $500 million (mn). The report was released at ACMA’s National Conference on Inorganic Growth yesterday.

While average disclosed deal size is ~ $45 mn, these deal volumes for YTD 2018 have been boosted on the back of large buy-out transactions by financial investors and overseas acquisitions by large incumbents in the Indian auto sector. While deal volumes pertaining to mid-market players have been limited, there is an increasing focus on exploring inorganic opportunities amongst this segment on the back of increasing cash reserves and reasonable valuations in the overseas markets.

While launching the report, Vishesh C Chandiok, CEO, Grant Thornton India LLP said:

“Auto is amongst the first impacted sectors because of massive tech disruption, and the nearly 3x pricing premium in auto-tech transactions compared to traditional auto deals represents this. All mid to large Indian auto companies ought to have an active inorganic growth strategy, including a plan to partner with such companies in and outside of India if our industry is to achieve the AMP target of $200bn by 2026.”

Based on recent deal activity in the Indian auto sector, the report explores the key trends emerging in the Indian auto transactions landscape. One of the key trends emerging is that while strategic investors continue to be the primary drivers for deals in the industry, similar to develop markets globally, a maturing industry landscape with the emergence of several scaled up players is also providing buy-out opportunities for large financial investors to participate in the growth story of the sector.

Commenting on the trend, Sumeet Abrol, Partner, Grant Thornton Advisory Private Limited said, “While traditional considerations of expansion, diversification and consolidation are likely to continue being the fundamental drivers of M&A activity for now, tech disruptions that the industry is facing simultaneously on multiple fronts are likely to weigh in on the long term strategy planning for most Indian players in the near term.”

“The automotive industry across the world and in India is going through a wide range of disruptions. There is a dire need for the Indian auto component industry to stay relevant and accelerate investments in technology development and acquisitions. It is in this context, that we have set-up a dedicated pillar in ACMA to focus on M&A, JVs, Technology Collaborations and strategic partnerships. Further, with insights gained from ACMA - Grant Thornton report, we have put the gear in motion for the industry to be future ready,” said Mr. Nirmal Minda, President, ACMA.

In addition to the traditional considerations, the report also highlights that the inorganic route is expected to gain popularity in Indian auto sector because of continuous disruptions in the sector in the form of evolving customer preferences and increasing regulatory push on emission control and Electric Vehicle (EV) adoption. In addition to the domestic factors, the need to stay relevant from a global context is expected to be another key driver for Indian auto players to invest in and accelerate technology adoption in their own businesses.