Despite the slowdown in the auto industry during the past 12 months, mergers and acquisitions in the sector rose by around 73 per cent to $449 million, from $260 million during January to October 2019. The deals include domestic and crossborder mergers, and internal restructuring. The growth was led by the Mahindra-Ford deal, valued at $275 million.
According to Grant Thorton data, domestic volumes crossed the $100-million mark for the first time since 2017 to touch $141 million in 2019, from $46 million last year, up over 200 per cent year-on-year. Crossborder deals, on the other hand, dropped by about 85 per cent to $33 million in CY19 from $215 million last year.
Pankaj Chopda, Director, Grant Thornton India LLP, said that the total value of domestic deals in November rose three-fold in 2019 from the 2018 figure, even as the deal volume remained constant, indicating improved valuation and high investment potential in the sector.
On the other hand, there is considerable uncertainty in crossborder deals, where deal values declined five times during the same period.
On the M&A front, the 42 per cent increase in deal values in this space is attributable to a single deal, even as overall deal sentiment has improved. The top deal during the period was the $275 million merger and internal restructuring of Mahindra & Mahindra-Ford.
US auto major Ford Motor has agreed to move most of its assets in India to a joint venture with Mahindra and Mahindra. The new company will buy most of the automotive assets of Ford India Pvt Ltd (FIPL), including two vehicle manufacturing plants. However, Ford's engine making plant in Sanand, Gujarat, is not part of the deal.
The Mahindra group will own a 51 per cent stake in the company, with Ford holding the remaining 49 per cent.
Other major deals include Mahindra CIE Automotive's acquisition of Aurangabad Electricals Ltd for $125 million, followed by the $23.06 million Minda Industries-Delvis Gmbh deal and the stake hike by Greaves Cotton in Ampere Vehicles for $5.58 million.
Automakers say the Indian automobile industry has been opting for the inorganic route to balance investments and prepare for future disruptions, such as emission norms (from Bharat Stage IV to Bharat Stage VI), electric vehicles, and safety and security (with the Ministry of Road Transport and Highways making it mandatory to have an emergency button and a vehicle-tracking system in all kinds of public transport).
The industry is crucial for the economy as it accounts for 7.1 per cent of the country’s Gross Domestic Product (GDP) and, as per Automotive Mission Plan (AMP) 2016–26, its contribution is projected to increase to 12 per cent. India is expected to emerge as the world’s third-largest passenger vehicle market by 2021.
The industry attracted foreign direct investment (FDI) worth $20.85 billion during the period April 2000 to December 2018, according to data released by the Government’s Department of Industrial Policy and Promotion (now known as Department for Promotion of Industry and Internal Trade, or DPIIT). In this scenario, India’s automotive industry, including component manufacturing, is expected to reach $51.4–282.8 billion by 2026.