Alternative M&A deals in the automotive industry

A new era of automotive M&A

Companies up and down the automotive value chain are increasingly looking to alternative strategies in the form of strategic partnerships, alliances, and joint ventures to address near-term issues, including capability gaps and supply constraints while optimizing capital distribution. At the same time, original equipment manufacturers (OEMs) and suppliers should carefully consider whether to gain capabilities through inorganic acquisitions and partnerships, invest to build them in-house, or forego activities in these emerging areas altogether.

Alternative dealmaking has taken a more predominant role in the automotive industry compared to traditional merger and acquisition (M&A) activity. In fact, analysis of more than 240 transactions completed between April 2018 and February 2022 shows alternative dealmaking has outpaced traditional M&A by nearly three times. Recent study data also suggests that most “modern” alternative dealmaking is being driven by a critical need to keep pace
with transformative technologies shaping the global automotive industry, including electrification (59% of deals), autonomy (23%), and connectivity (16%).

Download our full report to learn more about the rise of alternative deals in the automotive industry.

Key considerations for automotive industry leaders

Overall, the proliferation of alternative deals will likely continue to disrupt the global automotive value chain. Nontraditional partnerships involving small, agile startups, and large mature companies from outside the industry are accelerating the development of key technologies including electrification and autonomous driving.

It should be noted, however, that the number of suitable partners is by no means endless. A number of significant alliances have already been struck, so automakers and suppliers looking to gain an advantage through alternative dealmaking should be identifying and vetting potential candidates before the opportunity closes.

Here are a few considerations for industry leaders:

• Prior to engaging in an alternative M&A transaction, companies should carefully consider the merits of partnering versus buying or building a solution to address a specific need.
• Organizations should consider their endgame and what obligations or rights an entity needs to preserve long-term value at that time.
• The viability of alternative deal strategies also depends on industry maturity. When the cost of technologies is high and consumer adoption rates are low, alternative deals are a sensible approach to gain a foothold in the space. However, as the cost and adoption curves begin to invert, a “build” or “buy” approach may be a more viable option.
• It should be noted that alternative deal strategies may not be mutually exclusive; our analysis suggests nearly 10% of companies striking alternative deals were also involved in traditional M&A activities during the same period.