Private Equity Accelerates into Auto Manufacturing
Insight from Jordan Sardo, originally published on March 5th, 2021.
Over the next couple of years, the automotive industry is primed to see rapid change. In the past, most auto manufacturers were complacent with innovation, settling for updated body styles and increased fuel efficiency in order to remain competitive. The complacency in automotive manufacturing innovation can be seen in figure 1, where deal count in the automotive industry becomes relatively stagnant from 2015–2019, with only 2018 being an outlier in capital invested.
Figure 1: Deal Count & Capital Invested in the Automotive Industry
As the pandemic disrupted auto manufacturers, they found that most cash-on-hand was going into the preservation of business operations instead of increasing innovation. In an earnings call on May 6th, 2020, BMW AG CFO Nicolas Peter said “Now more than ever, our investments need to be targeted and based on sound judgment,” which was precluding a decrease in investment from €5.7 billion in 2019 to below €4 billion in 2020.
While auto manufacturers were stagnant with innovation, private equity firms were taking advantage of favorable fundraising conditions. According to this article by S&P Global, there was an excess of dry powder, which is capital raised by the PE funds waiting to be deployed. The tapering of investment from auto manufacturers was just the opportunity the PE firms were looking for. Deal count from 2019–2020 in the automotive industry jumped over 2.5x, showing an increase in early stage, or small, deals. However, the sentiment in the industry is a mixed bag as David McShane, executive vice president for corporate partnerships at Autotech Ventures, alludes to when he said “even the prospect of a bargain is not always enough to lure buyers at a time of such uncertainty.”
Here are some of the most active Funds in the automotive space recently:
1. Penfund (25)
2. Leonard Green & Partners (20)
3. Hellman & Friedman (18)
4. Kinderhook Industries (17)
5. OMERS (15)
6. The Carlyle Group (14)
T-7. Ridgemont Equity Partners (13)
T-7 Audax Group (13)
T-9. CenterOak Partners (12)
T-9. ONCAP
Those who do decide to dive into the industry have seen several areas of potential interest according to this article by the Capital Round Table. The areas of opportunity include electric autonomous cars & trucks, opportunities for suppliers, and ride sharing. With private investments becoming more involved in the automotive industry, it’s exciting to consider what new tech could be coming our way.
Sources:
https://my.pitchbook.com/?pcc=430156-81
https://capitalroundtable.com/event/private-equity-investingin-automotive-related-companies/
Jordan is a senior at the Peter T. Paul College of Business and Economics where he is pursuing a dual degree in Economics and Finance. During his time studying at Paul College he has discovered a passion for private investing and entrepreneurship. Jordan utilized his experience in the fund and his passions during his internship this past summer at Connecticut Innovations, a venture capital firm in Connecticut.
