Chinese auto suppliers eye M&A abroad- study

Updated: 2010-10-20 09:09
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Chinese auto parts suppliers are showing increased interest in buying rivals worldwide in a bid to bolster their portfolios ahead of an expected surge in Chinese sales in coming years, Reuters reported on Tuesday, citing a recent study.

"They are interested in consolidating within China, but also making acquisitions in Europe and in North America to actually add to their product technology portfolio," Dietmar Ostermann, an auto consultant with PRTM Management Consultants, said in an interview.

In a study examining bankruptcy and consolidation prospects in the global auto supplier industry, PRTM projected that sales of light vehicles in China, the world's largest automobile market, are likely to jump more than 30 percent this year.

Chinese auto production may almost double to 30 million units in five years, Ostermann said.

This will likely spur some of China's largest auto parts suppliers to look for potential acquisitions to meet growing demand, said Ostermann, who said he now spends roughly half his time working in in China.

PRTM said Changchun Faway Auto, Ningbo Huaxiang Electronic and Fawer Automotive Parts were likely to be among the Chinese companies most actively looking for acquisitions.

Deal activity within the auto supplier sector has picked up this year as the auto market recovers from the depths of the sharp downturn in 2009, according to PRTM.

The first five months of 2010 saw 108 industry deals worldwide, a near-record for that time period.

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Chinese and Indian suppliers are expected to be the buyers in about 15 percent of the deals this year, up from 2 percent in 2000, the study showed.

Still, Japanese and North American auto suppliers are more likely and able to be consolidators

"Despite the Chinese suppliers' strong buyer scores, they are not yet large enough (with the exception of steel maker Baosteel) to be on the top potential buyers roster," the study found.

PRTM's study focuses on the top 100 global auto suppliers as well as 460 of the next-largest parts makers from seven key regions and countries.

The study projects a gradual recovery for North American and European suppliers, who are grappling with a shift in vehicle sales growth toward the emerging markets and a push by automakers to trim the number of parts makers they work with.

Bankruptcies among US-based parts makers have slowed since last year, but European supplier failures will likely persist through 2011 as sales decline, the study showed.

By contrast, bankruptcy risk of suppliers based in fast-growing markets like Brazil, India and China is minimal.