The emergence of technology-led M&A and switch JV in auto sector

by / Wednesday, 04 December 2019 / Published in News & Updates

Chasing growth sans sustainability has led to the unprecedented phase of the slowdown in the auto sector. The prolonged phase of muted demand has led to production cuts.

The slowdown blues and the evolution of mobility technologies have altered the Merger & Acquisition (M&A) and Joint Venture (JV) landscape of automotive and auto component sectors to a great extent, phasing out old intent and bringing in fresh perspectives.

M&A in auto sector is no longer about showing burgeoning value to the company shareholders and pushing for inorganic growth. This is true across the value chain – i.e. automobile manufacturer, auto component manufacturers, automobile dealers and automobile Lenders.

Chasing growth sans sustainability has led to the unprecedented phase of slowdown in the auto sector. The prolonged phase of muted demand has led to production cuts.

As a result, the M&A and JV trend in the sector is gradually pivoting on to technology play around – Autonomous, Connected, Shared and Electric mobility (ACSE). The underlying tone is obviously is to achieve sustainable growth, which will lead to sustainable consumption and investment cycle.

Instances like – the recent collaboration between Ford Motor and Mahindra & Mahindra. And Hyundai Motor Group acquiring, stakes in Ola signals a transitional phase in the auto sector. The transformational phase will create further M&A opportunities in the auto ancillary segment, as there will be increased demand for vehicles around these new technologies, which needs deep pockets to Innovate, Design, Manufacture & Retail.

Under present circumstances, exploration of M&A avenues to strengthen their value proposition, is, unquestionably, a much-desired endeavour. After all, M&A wave is always driven by the aim to take the business to the next level and fill the gaps in areas such as product, market, technology etc.

The companies that are not willing to tread the acquisition route to enhance their product-line will go for JV. Such an arrangement will help them leverage the best of both companies. These JVs are termed switch JVs where the key intent is to ride on the bandwagon of new technologies.

Notably, the foray of companies like Kia and MG Hector should trigger M&A and JV. Their product-line marketing approach led by technology and innovation will create a new consumer segment and to cater those evolved consumers, auto ancillaries must be up to speed technologically.

So, auto ancillary sector will witness both capability & capacity-enhancement-led M&As and JVs. Also, in all likelihood, auto component manufacturers from other parts of the country feel the need to acquire facilities in the vicinity of Kia or MG Hector.

To put things into perspective, M&As and JVs related to product technologies will continue to witness growth in Auto sector. The trend also marks fading of fuel economy and rise of shared economy.

Apart from ACSE, the growing emphasis on light-weighting technologies to comply with stricter fuel consumption (CAFE) and emission norms (BS-VI) is also pressing auto component manufacturers to reorganise their product portfolio through JV and M&A. So, one can expect a churn in the product pipeline catalysed by M&As and switch JVs.