China auto parts in M&A drive to move up value chain

Updated: 2010-08-02 14:38
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Chinese auto parts makers are moving into the overseas M&A fast lane, eyeing a distressed global market to close a technology gap with world leaders to meet sizzling demand at home and eventually sell overseas.

Several major deals have already been inked and more are expected in the months ahead as the global industry retrenches, planting the seeds for a future crop of Chinese titans to compete with the likes of Robert Bosch and Denso.

China's automotive sector has grown at breakneck speed in the last decade, passing the United States last year to become the world's top auto market.

Yet its parts sector remains fragmented with 20,000 manufacturers lacking the capital needed to invest to meet higher quality and emissions standards and move up the value chain.

Many Chinese firms, eyeing technologies ranging from engines to braking and transmission systems, are now hiring investment banks, management consultants and law firms to study possible deals.

"We have been advising a number of Chinese companies, which are actively looking at overseas acquisitions in the United States and European markets," said Michael Jiang, a KPMG partner and corporate finance co-head of Automotive China.

Jiang forecast the coming wave of purchases could see a deal that breaks the $1 billion mark.

That would be more than double the largest deal to date, the purchase of General Motors' Nexteer steering components unit by a joint venture of Beijing's Tempo Group and the Beijing government for a reported $450 million last month.


Other notable deals include Geely Automobile paying $40 million last year for Australian gearbox maker Drivetrain Systems International, a supplier to Ford Motor Co, Chrysler and Ssangyong Motor.

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And China's largest independent auto maker Wanxiang Group, which owns Shenzhen-listed Wanxiang Qianchao, has also been active, buying more than 20 firms in North America, Europe and Australia over the last few years.

Other major independent parts makers that could drive consolidation include Weichai Power, which bought French engine producer Moteurs Baudouin last year, Nasdaq-listed SORL Auto Parts and Zhejiang Wanfeng Auto Wheel Co.

Ailing global players that could be looking to sell part or all of their operations include struggling US firms like Delphi, Lear and Visteon.

Jiang mentioned Visteon as one company that was rumored to be in talks to sell assets to Chinese buyers, though a Visteon spokesman declined to comment on market speculation.

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