Preqin’s Actionability Signal shows that the roads are clear for greater investment in select auto companies.
Preqin’s Actionability Signal shows that the roads are clear for greater investment in select auto companies.
With all the excitement about electric vehicles (EVs), driverless cars, and solid-state batteries, it’s easy to forget the volume of high-quality companies in the traditional automobile market, making everything from brakes to forged steel componentry.
In fact, the oldest company tracked by Preqin of the near 4,000 Automobiles, Other Vehicles & Parts category dates back to 1735, more than 150 years before Karl Benz first fired up an internal combustion engine in 1886. No doubt some companies can evolve alongside newer technology, and not every business will be wiped out by the arrival of EVs.
The auto sector has yielded a rich seam of deals globally, with 197 transactions and a reported aggregate value of $15.4bn in 2021. In 2022, there were 169 deals at a value of $16.6bn. Investment has been slower in the first eight months of this year, with a $3.0bn aggregate across 92 deals. This is more likely to reflect the more difficult deal environment than any lack of appetite.
Actionability
Although challenges persist, dealmakers are seeking high-quality auto companies that are open to meaningful conversations about receiving investment within the next 6-to-18 months. Preqin datapoints highlight these ‘actionable’ companies on the basis of factors like the size of previous funding rounds, staff percentage changes, fund vintage, and previous deal stage, alongside aggregated information on holding periods.
When it comes to the automotive sector, Preqin data shows that there are currently 96 companies with an actionability signal for investment. Of those, some 23 are located in Asia, 26 in North America, and 46 in Europe. They are all mature companies that have been through a buyout, and many are likely to be looking for capital to futureproof businesses and take advantage of a new wave of tech opportunities. Although there is currently no year-on-year data to compare the rise and fall of Actionability Signal sentiment, it shows that today 96 potential high-value opportunities exist in a dynamic sector, alongside high borrowing rates, and watchful deal-makers.
Some of the biggest names in the alternatives space are active in the auto sector and could expand their holdings if high-quality companies become available. In 2014 Blackstone completed its $5.4bn acquisition of Gates Corporation, a global maker of transmission belts, fluid power products, and auto components. Three years later, KKR completed its $4.5bn acquisition of Calsonic Kansei, a maker of car components including thermal systems, exhaust systems, and electronics, that counts Nissan-Renault-Mitsubishi Alliance as a key customer.
While EVs might represent the future of the sector for drivers, the shift may be smaller for companies and investors. Makers of auto components, whether of lights, airbags, seatbelts, tires, windows, mirrors, or any other part, will adapt and thrive in the new landscape. The old adage could ring true: when people start digging for gold, sell shovels. Or in this case, windshield wipers.