Issue 90, June 2017 Asian Automotive Newsletter ASIAN AUTOMOTIVE NEWSLETTER JUNE 2017, ISSUE 90
We hope that you find the Asian Automotive Newsletter informative.
BDA Partners is an investment banking firm specializing in executing cross-border transactions involving Asia, including acquisitions, divestments, JVs, capital raising and restructuring. We have offices and NO TEXT ABOVE THIS LINE professional staff throughout Asia, the Middle East, Europe and the US. If you would like to learn more about how BDA is positioned to help your business grow through acquisitions, or to achieve maximum value in a divestment or fund-raising exercise, please contact us at any one of our offices.
Charles Maynard, Senior Managing Director [email protected]
CONTENTS
Latest activities and trends in the Asian automotive sector 2 Industry review & outlook 3 Indexed share price performance 5 Recent automotive transactions and developments by country 6 Australia 6 China 6 India 7 Indonesia 7 Japan 7 Korea 8 Malaysia 8 Thailand 8
Selected Asian automotive transactions with multiples 9 NO TEXT BELOW THIS LINE BDA global automotive contacts 10
1 ASIAN AUTOMOTIVE NEWSLETTER JUNE 2017, ISSUE 90
Latest activities and trends in the Asian automotive sector
In the past year, BDA has advised on three cross-border automotive transactions where Asian strategics were the ultimate acquirers – the sale of Tristone (a German automotive fluid transfer system supplier), the sale of TitanX (a Swedish truck engine cooling solutions provider) and the sale of new stocks issued by UQM (an American electric vehicle drive system supplier). We expect Asian corporations to continue to aggressively seek cross-border acquisition opportunities in the sector.
Broadly speaking, a number of factors indicate future automotive M&A will likely remain strong, including large cash balances, continued pressure from shareholders and competitors, increased pace of innovations and the emergence of new automotive technologies, including autonomous driving, connectivity, vehicle sharing, clean tech vehicles, etc. Unlike transactions in the past that were largely driven by consolidations in the sector, expansion into new technologies and new business models are likely to have a broader impact on where M&A efforts will center on in the years ahead.
Equally interesting in the automotive deal scene are the new entrants making inroads. To name a few examples, Tencent’s investment in NextEV, China’s next-generation electric car company; Apple’s US$1bn investment in Didi, China’s largest ride-sharing company; and Amazon’s stock warrants & supply deal with the US-based hydrogen fuel cell maker Plug Power.
Watch this space!
Charles Maynard, Senior Managing Director [email protected]
2 ASIAN AUTOMOTIVE NEWSLETTER JUNE 2017, ISSUE 90
Industry review & outlook*
M&A activity Global automotive transaction volumes
Volume (No.) 79 80 75 68 64 60 59 59 57 60 56 54 46 47 38 38 38 40 35 34 26 26 23 25 24 17 20 16 14 15 11 10 9 11 4 5 4 5 6 4 5 5 6 3 3 1 1 2 2 2 2 3 0 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2
North America Europe China Asia** India Japan Korea SE Asia
Global automotive transaction volumes in Q2 2017 have slowed somewhat compared to a strong Q1, though with still a couple of weeks remaining in the quarter. This mirrors 2016, when global M&A activity dipped slightly overall in Q2, following a positive start to the year. Geographies such as Japan and Southeast Asia, as well Asia (ex-China) as a whole, have either grown in terms of volume or are on course to, compared to the previous quarter. China continues to be the most active market in Asia by some distance.
M&A activity Global automotive average transaction values
Value (US$m) 10,000 9,551
7,500 5,944 6,053 5,593 5,000 4,561 4,527 3,988 3,108 3,006 2,861 2,973 2,770 2,722 2,606 2,464 2,626 2,500 1,613 1,865 1,303 1,023 1,347 1,188 642 1,850 560 1,844 759 1,591 619 364 149 66 72 463 95 243 223 44 7 2 31 4 57 50 174 0 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2
North America Europe China Asia** India Japan Korea SE Asia
The story for global automotive M&A values is very similar to volumes (see above). A solid performance in Q1 2017 looks to be followed by a decrease in value in the current quarter. As was the case with volume, Asia (ex-China) witnessed a rise in total transaction values, led by regions including Japan and Southeast Asia. On the surface, the Chinese market looks to have softened, falling some way short of its peaks in Q1 and Q3 2016; however, this could simply be a temporary phenomenon and it would not come as a major surprise to see significant values of transactions in the country over the course of 2017. A notable Chinese deal in Q2 was the investment of over US$500m into YiXin Capital, an online automotive trading and financing platform operator, by an investor group.
3 *Geographies are based on the target’s location; **Includes India, Japan, Korea and Southeast Asia | Source: Dealogic ASIAN AUTOMOTIVE NEWSLETTER JUNE 2017, ISSUE 90
Industry review & outlook*
M&A valuations Global automotive transaction multiples
Average EV/EBITDA
20.0x 18.1x 17.2x 16.3x 15.3x 14.8x 14.1x 15.0x 13.4x 13.2x 12.6x 11.8x 12.0x 11.8x 12.0x 12.1x 11.6x 11.7x 11.0x 11.5x 11.5x 10.4x 9.7x 9.2x 9.3x 9.6x 10.0x 8.6x 8.3x 8.8x 8.8x 8.0x 10.2x 7.6x 5.6x 5.4x 5.0x
N/A N/A N/AN/A N/A N/AN/A N/A N/A 0.0x 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2
North America Europe China India Japan Korea SE Asia
With a limited sample size, it is difficult to draw too many strong conclusions, but we can discern a couple of noticeable trends. Firstly, it appears that on the whole, average automotive transaction multiples have been creeping upwards since the start of 2016. This quarter seems on course to broadly match the figures of Q1. Secondly, acquisition targets in Asia generally seem to entail higher transaction multiples than their Western counterparts, as one might expect. Asian countries/regions that have witnessed high multiples throughout the period include Korea and Southeast Asia.
Public company valuations Public automotive company valuation multiples
Average EV/EBITDA
50.0x 46.2x 42.1x 42.5x 40.0x
29.0x 30.0x 23.0x 17.9x 20.0x 15.6x 16.4x 15.6x 13.8x 12.6x 11.3x 12.3x 12.2x 11.2x 12.0x 11.5x 10.1x 10.1x 11.2x 10.1x 11.4x 10.6x 10.9x 10.2x 10.8x 8.7x 9.2x 8.3x 10.0x 6.8x 5.5x 4.6x 5.0x 4.0x 4.5x
0.0x 2013 2014 2015 2016 2017
North America Europe China India Japan Korea SE Asia
Trading multiples of listed automotive countries show clearer and more noticeable trends with the benefit of a larger sample size. Sky-high multiples of Chinese public companies reflect the country’s lack of integration with international markets and strong growth prospects. In contrast, Japanese companies have shown the lowest multiples throughout, never averaging double figures. Taken as a whole, global average multiples have remained broadly similar since 2013.
4 *Geographies are based on the target’s location | Source: Dealogic, Capital IQ ASIAN AUTOMOTIVE NEWSLETTER JUNE 2017, ISSUE 90
Indexed* share price performance The exhibits below illustrate how each group of automotive companies has performed, on an indexed basis, and in comparison to the S&P 500, over the last 3 months, 12 months and 3 years. Overall performance has been broadly flat in the last three years, though there has been a general increase in the last 12 months, and also in the last 3 months but to a lesser extent.
Indexed stock performance – last 3 months
USA (+1.4%) Europe (-1.0%) China (+9.4%)
20% Hong Kong (+11.5%) India (+10.2%) Japan (-4.4%) 15% Korea (+11.1%) S&P 500 Automobiles and Components (-6.2%) 10% 5% 0% -5% -10% -15%
Indexed stock performance – last 12 months
USA (+15.8%) Europe (+22.7%) China (+71.2%) Hong Kong (+48.6%) India (+27.1%) Japan (+11.5%) 80% Korea S&P 500 Automobiles and Components (+7.7%) (+11.4%) 60%
40%
20%
0%
-20%
Indexed stock performance – last 3 years
USA (-4.6%) Europe (+6.1%) China (+36.8%) 100% Hong Kong (+178.8%) India (+57.2%) Japan (-2.8%) 80% Korea (-30.4%) S&P 500 Automobiles and Components (-12.2%) 60% 40% 20% 0% -20% -40% -60%
5 *Indices of automobiles and components companies from each region | Source: Capital IQ ASIAN AUTOMOTIVE NEWSLETTER JUNE 2017, ISSUE 90
Recent automotive transactions and developments by country
Australia Huiyu Automobile, a China-based Fuxin Dare Automotive Parts, a seller and servicer of automobiles and China-based automobile gear Apollo Tourism & Leisure, an related parts, for US$190m. The manufacturer, has agreed to acquire Australian recreational vehicle acquisition represents a move into the Shanghai Xudao Automotive Parts, a manufacturer, has agreed to acquire sales and service segment of China-based automotive parts maker, Kratzmann Caravans and Clint's automobiles. Post-transaction, the from Changchun Kewei Machinery, Caravan Warehouse, two Australian company will be renamed Grand for US$17m. The acquisition is in line caravan and motorhome retailers, for Baoxin Auto Group. May 24, 2017 with Fuxin Dare's business strategy to US$12m. The transaction strengthens achieve synergies via integrating Apollo's strategy to grow its Australian An investor group including Bitauto, a operations and management resources retail sales business and to leverage the US-listed Chinese online platform for to improve its competitiveness as well Winnebago, Adria and Talvor brands. second-hand auto dealerships, the as long-term profitability. This is the May 9, 2017 China internet giant Tencent and second deal Fuxin Dare has announced China Orient Asset Management, a in the latest quarter. April 26, 2017 Apollo Tourism & Leisure has also Hong Kong-based asset management agreed to acquire 43% of CanaDream company, has agreed to acquire 48% of Microvast Power Systems, the Corporation, a Canadian recreational Yixin Capital, a China-based online Chinese subsidiary of Microvast, the vehicle dealer, for US$11m. The automotive trading and financing US-based developer of ultra-fast transaction contributes to Apollo's platform operator, for US$579m. The charging battery power systems for growth plans in the North American acquisition is a combination of data, electric vehicles, received US$400m in market, adds approximately 1,000 users and capital resources contributed funding from investors including the rental units to Apollo's portfolio, and by various investors, which allows Chinese funds CDH Investments and provides an opportunity to leverage Yixin Capital, a subsidiary of Bitauto, to CITIC Securities. The transaction technology for both companies. perform more accurate and efficient highlights the growing interest in May 8, 2017 credit evaluation, as well as gain more electric vehicle applications, including brand awareness. May 11, 2017 from financial sponsors. Microvast will use the money to implement a “Clean Changzhou Tenglong Auto Part, a City Transit” strategy in China, Asia, China China-based automobile component Europe and North America, for further producer, has agreed to acquire 54% of R&D and to scale production capacity. NextEV, a Chinese manufacturer of Zhejiang Richleo Environmental April 20, 2017 mid- to high-end smart electric vehicles, Technology, a China-based auto parts has raised Series C funding of US$600m exhaust gas recirculation (“EGR”) Aeolus Tyre, a China-based tire from a group of investors including the producer, for US$19m. The transaction manufacturer, has agreed to acquire Chinese internet giants Tencent and allows Changzhou Tenglong to explore the remaining 90% of Prometeon Baidu, the Chinese funds Hillhouse more business opportunities in the Tyre Group, an Italian industrial tire Capital Management and China auto parts EGR industry. May 10, 2017 manufacturer, and two China-based Everbright, and the global PE firm industrial tire producers, Guilin Beili Warburg Pincus. NextEV will use the Hongli Zhihui Group, a Chinese Tyre and Qingdao Yellowsea Rubber proceeds to accelerate its producer of LED products and lighting Group, for US$837m in total. commercialisation of new technologies components, has agreed to acquire Prometeon manufactures truck, bus, and cars. In April 2017, the company 51% of Danyang Yishan Dynamo agro and OTR tyres under the Pirelli announced its first mass-produced Equipment Manufacturing, a China- brand. The transaction is in line with electric car, which will be delivered in based manufacturer of car lighting Aeolus Tyre's strategy to expand its early 2018. June 1, 2017 fixtures and equipment, for US$33m. global market presence. Post- The acquisition strengthens Hongli’s acquisition, Aeolus will become the China Grand Automotive Services, a automotive LED business, which largest industrial tire manufacturer in Chinese investment holding company already offers headlamps, turn signals China and the fourth-largest in the of motor vehicle businesses, has agreed and dashboard lamps. May 2, 2017 world. April 13, 2017 to acquire 25% of Dalian Baoxin
6 Source: Capital IQ, Mergermarket ASIAN AUTOMOTIVE NEWSLETTER JUNE 2017, ISSUE 90
Recent Automotive Transactions and Developments by Country
Zhejiang Shuanghuan Driveline, a higher-margin high-tech applications. China-based gear component The acquisition will also help Kunming manufacturer, has agreed to acquire Yunnei to expand its market network Japan 65% of Chongqing Shenjian through increased presence in petrol Automotive Drive Part, a China-based and CNG stations. March 10, 2017 Itochu, one of Japan’s major trading automobile transmission component houses, has agreed to acquire 26% of producer, from Chongqing Machine Yanase, a Japanese dealer of imported Tool (Group) for US$15m. The cars, for US$58m. Combined with the transaction will enable Zhejiang India 39% it already owns, the deal brings Shuanghuan to focus on the Itochu’s stake in the company to over development of emerging competitive Mr. Padmanaban Mukund, an Indian 60%. Yanase is the largest imported- industries. April 6, 2017 private investor with interests in car dealer in the country, with 190 manufacturers of automotive and sales outlets and over 30,000 annual China Security & Fire, a China-based industrial components, has agreed to car sales, primarily dealing with automobile electronic product acquire 34% of Agile Electric Sub Mercedes-Benz cars, but also other manufacturer, has agreed to acquire Assembly, an Indian manufacturer of brands such as BMW and Volkswagen. Konsalnet Holding, a Polish security DC motors and brush cards, from Tata Itochu was attracted to the company’s service provider, from Culmstock Capital, the PE arm of the Indian strong domestic import sales, and aims Investments Limited, for US$118m. multinational conglomerate Tata to support its overseas expansion The transaction is in line with China Group, for US$66m. May 9, 2017 activities. May 25, 2017 Security & Fire's strategy to diversify from its automotive business and An unknown buyer has agreed to Topre, a Japanese manufacturer of expand in the security service market. acquire 11% of Kinetic Engineering, pressed products and electronic March 18, 2017 an Indian automotive manufacturer, devices, has agreed to acquire 20% of from Pinebridge Investments, a Marujun, a Japanese manufacturer of Qingdao Xingwei International Japanese asset management firm, for automobile body press parts and dies, Investment, the investment subsidiary an undisclosed value. Kinetic for US$10m. The deal allows both of Qingdao Doublestar, a China-based Engineering manufactures vehicles, companies to improve their mold tire manufacturer, has agreed to engines, gearboxes, gears, shafts and procurement. Through the business acquire 42% of Kumho Tire, a Korea- other auto-related components and partnership, the two companies will based tire manufacturer, from Kumho’s assemblies. March 7, 2017 work together on production and creditors, for US$832m. The purchasing, human resources and transaction is in line with Qingdao technology exchange. May 11, 2017 Doublestar's strategy to gain access to high-quality assets through fund Indonesia Tachi-S, a Japanese manufacturer of investment, with the aim of improving automotive seats, has agreed to acquire its competitiveness in the industry. Garuda Metalindo, an Indonesian the automobile seat parts arm of March 13, 2017 motor tools and components Fuki Kiko, a Japanese manufacturer of manufacturer, has agreed to acquire automobile parts, for US$54m. The deal Kunming Yunnei Power, a China- 70% of Mega Pratama Ferindo, an will allow Tachi-S to improve its based diesel engine producer, has Indonesia-based steel wire and bar automatic driving capability, a rapidly agreed to acquire Shenzhen Mingte drawing services provider, from growing field within the automotive Tech, a China-based producer of card Garuda Multi Investama for US$21m. sector. April 28, 2017 readers and automatic vehicle The transaction allows Metalindo to identification systems for refuelling, for procure raw materials of steel more US$120m. The acquisition is in line easily, and ensures a steady supply of with Kunming Yunnei’s business sustainable and quality raw materials. strategy to increase its product May 8, 2017 competitiveness by expanding into
7 Source: Capital IQ, Mergermarket ASIAN AUTOMOTIVE NEWSLETTER JUNE 2017, ISSUE 90
Recent Automotive Transactions and Developments by Country
JTEKT, a Japanese manufacturer of Route One sees Nexen Tech’s wire increased passenger comfort. automotive components and industrial harnesses as a critical offering in March 21, 2017 equipment, has made an offer to automotive electronic applications and acquire the remaining 67% of Fuji cutting-edge technologies. Nexen Tech Kiko, a Japanese manufacturer of will use its proceeds to expand its automobile parts, for US$228m. With operations, including increasing Malaysia the acquisition, JTEKT intends to production volume and strengthening integrate the multi-tiered column R&D. June 8, 2017 Zhejiang Geely Holding Group, the businesses, strengthen its ability to Chinese car manufacturer, has agreed offer brand-new steering systems, and Shanghai Aerospace Automobile to acquire 50% of Proton Holdings, a solidify its no.1 position in the global Electromechanical, a Chinese Malaysian manufacturer of motor steering system market. April 28, 2017 manufacturer of photovoltaic products, vehicles and related products, from the high-end automotive parts and new Malaysian conglomerate DRB-Hicom, Denso, the Japanese manufacturer of materials, has agreed to acquire the for US$40m. As part of the deal, Geely automotive parts, has increased its automotive heat exchanger business of will also acquire a 51% stake in Lotus stake to 51% in Fujitsu Ten, a erae Automotive Systems, a Korean Cars, the British sports-car maker, for Japanese manufacturer of car radios manufacturer of automotive US$130m. Geely will seek to achieve and navigation systems, for US$149m. components and modules, for synergies with both Proton and Lotus The deal will allow both Denso and US$288m. The acquisition reflects in areas such as R&D, manufacturing Fujitsu Ten to manufacture automotive Shanghai Aerospace’s push to diversify and marketing. Proton, which has been ECUs (engine control units) and high- its automotive components business unprofitable for some time, had been frequency radars, as well as strengthen from its traditional offerings such as seeking a foreign partner as a condition their self-driving technologies. In motors and electronics, into thermal for a government rescue loan. addition, they will continue to applications. It also enables the May 24, 2017 collaborate in developing next- company to grow significantly in the generation vehicles, including Korean market. April 11, 2017 connected cars. April 27, 2017 Johnson Electric, the Hong Kong- Thailand Ohashi Technica, a Japanese based motor, automobile component manufacturer of precision components and control systems producer, has AAPICO Hitech, a Thailand-based primarily for automobiles, has agreed agreed to acquire an additional 50% of manufacturer of assembly jigs, to acquire 20% of Nakahyo, a Japanese Halla Stackpole Corporation (“HSC”), stamping dies and OEM automotive manufacturer of automobile-related a Korean manufacturer of automobile parts, has agreed to acquire 25% of parts, for an undisclosed value. This powder metal components, from Halla Sakthi Global Auto Holdings follows an agreement in February Holdings for US$81m. Combined with (“SGAH”), a UK/Indian manufacturer between the two companies to set up a its existing 30% holding, the deal of automotive parts, for US$50m. SGAH JV in the US, called OHASHI NAKAHYO brings its stake in HSC to 80%. As well serves global automotive customers U.S.A., with Ohashi Technica as increasing exposure to the rapidly such as General Motors, Ford, contributing 90%. April 5, 2017 growing Asian powder metal market, Continental, Maruti Suzuki India and the acquisition will enable Johnson Iljin Automotive. AAPICO will gain a new customer base and international Electric to manage and direct its powder metal operations on a more distribution channels (SGAH has Korea integrated, global basis. The subsidiaries in China, USA and transaction will also strengthen the Portugal), while aiming to reduce its Route One Fund, a Korean investment position of Johnson Electric as a global exposure to its home Thai market. fund, has agreed to acquire 70% of supplier to key engine, transmission, May 25, 2017 Nexen Tech Corporation, a Korean suspension and steering applications manufacturer of wiring harnesses for that contribute to improved fuel the automobile industry, for US$58m. economy, reduced emissions and
8 Source: Capital IQ, Mergermarket ASIAN AUTOMOTIVE NEWSLETTER JUNE 2017, ISSUE 90
Selected Asian automotive transactions (three months ending June 2017) (US$m)
Announced Target Acquirer % Deal EV/ EV/ Target Name Acquiror Name Date Country Country Acquired Value Revenue EBITDA erae Automotive Systems Shanghai Aerospace 11/04/17 (Automotive heat exchange Korea Automobile China 100% 288 1.4x N/A system business) Electromechanical Zhejiang Sanhua Automotive Zhejiang Sanhua Intelligent 12/04/17 China China 45% 139 2.4x N/A Components Controls
13/04/17 Guilin Beili Tyre China Aeolus Tyre China 100% 97 N/A N/A
CITIC Securities; Microvast Power System 20/04/17 China CDH Investments; China N/A 401 N/A N/A (Huzhou) SDIC Fund Management
28/04/17 Fuji Kiko Japan JTEKT Japan 67% 234 0.4x 5.4x
Fuji Kiko (automobile seat parts 28/04/17 Japan Tachi-S Japan 100% 54 N/A N/A manufacturing business) Danyang Yishan Dynamo 02/05/17 China Hongli Zhihui Group China 51% 33 N/A N/A Equipment Manufacturing
09/05/17 Kratzmann; Concept Aust Australia Apollo Tourism & Leisure Australia 100% 11 N/A N/A
Zhejiang Richleo Environmental Changzhou Tenglong Auto 10/05/17 China China 54% 18 3.2x N/A Technology Parts Tencent; Bitauto; China 11/05/17 YiXin Capital China China N/A 579 N/A N/A Orient Asset Management
11/05/17 Marujun Japan Topre Japan 20% 11 0.5x 9.4x
China Yongda Automobiles 12/05/17 China Asset Link Investment Hong Kong 8% 113 0.4x 13.0x Services Holdings Hualing Xingma Automobile 13/05/17 China Undisclosed Acquiror China 15% 103 1.0x 20.3x (Group) Shenzhen Keensi Automobile KMC (Kuei Meng) 15/05/17 Parts; Shenzhen Quanshitong China Taiwan 100% 33 N/A N/A International Electronic; Keensi Industrial
24/05/17 Proton Holdings Malaysia Zhejiang Geely Holding Group China 50% 40 0.3x N/A
China Grand Automotive 24/05/17 Dalian Baoxin Huiyu Automobile China China 25% 190 N/A N/A Services
25/05/17 Yanase Japan Itochu Japan 26% 58 0.1x N/A
25/05/17 Sakthi Global Auto Holdings UK/India AAPICO Hitech Thailand 25% 50 N/A N/A
08/06/17 Nexen Tech Corporation Korea Route One Fund Korea 70% 58 0.9x 11.4x
Mean 55% $132 1.1x 11.9x
Median 50% $58 0.7x 11.4x
9 Source: Capital IQ, Mergermarket ASIAN AUTOMOTIVE NEWSLETTER JUNE 2017, ISSUE 90
BDA global automotive contacts
New York London Seoul Tokyo Euan Rellie Charles Maynard Ryan Jung Jeff Acton Senior Managing Director Senior Managing Director Director` Managing Director
Andrew Huntley Senior Managing Director NO TEXT ABOVE THIS LINE
Shanghai Jeffrey Wang Managing Director
Anthony Siu Managing Director
Mumbai Hong Kong Kumar Mahtani Simon Kavanagh Managing Director Managing Director
BDA Partners Ltd is an investment banking firm that advises on cross-border mergers and acquisitions, distressed situations, capital raisings and restructurings. Our focus is on transactions with an Asian angle or story, including the Middle East, with enterprise values of up to US$1bn. BDA has ten offices and over 75 professional staff throughout Asia, the U.S. and Europe. For further information on BDA’s services or on any of the articles in this newsletter, please contact the offices listed.
Charles Maynard Senior Managing Director [email protected]
www.bdapartners.com
All information is accurate based on the information found at CapitalIQ, Mergermarket and VCCircle. Further detail regarding the source of information used is available upon request.
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