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.