SURVIVAL OF THE FITTESTM&A intensifies the cut-throat competition in the European automotive aftermarketCoverphoto: kiri/Adobe StockPhotos: Roland BergerGmbH, HSH NordbankAGRoland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 34 countries, we have successful operations in all major international markets. Our 50 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 220 Partners. HSH Nordbank, the bank for entrepreneurs, represents people possessing foresight, passion and initiative. It has extensive expertise in the corporate client business and focuses on the energy & infrastructure, trade & food and industry, service and healthcare sectors. The bank occupies a leading position in commercial real estate finance in Germany, is well established in the maritime industry and convinces businesses the world over with its know-how, level of service and commitment.About usThe European automotive aftermarket is in the midst of profound structural change. Our series of studies analyzes the transformation this industry is going through and gets players thinking about how they can position themselves. We launched our inaugural publication in the series in April 20nullnullnullonsolidation in the European automotive aftermarketnullhighlighted the full spectrum of trends shaping the industry today. nullow these developments are considnullered in detail in separate studies. This publication shines a light on mergers nullacnulluisitions nullnullnull There have been null deals in Europe since 200null with the pace of nullA activity picking up sharply in 20null and 20null nullboth in numbers of transactions and in their volumes. nullnce the meganulllayers from the nullorth American continent hit the European market in forcenullthe process of consolidation has taken on a whole new dynamic. null how can industry players ride the consolidation wave and har nullness the disruption to evolve their businessnullnullw can organizations rapidly turn themselves into a single successful entity following an acnulluisition through smart management of their post merger integrationnullThese are the nulluestions many players are asking themselves. There are no simple answers. nullt analyses and outlines of possible strategies can help organiza nulltions pick out their individual path to success through the changed competitive landscape. That is the goal of this second publication in our series. null it we describe which players and what developments are driving the consolidation process in the European automotive afternullmarket. The focus is on the independent aftermarket nullAnull in the passenger vehicles seg nullmentnullthis being an area enulleriencing a huge amount of momentum right now. nullecificallynullwe address the market shakenullout thatnulls happening as a result of both passive and active connullsolidationnulldescribe the international deals taking place and offer insight into the buyer uni nullverse in the nullA market. On this basis we work out the critical points that industry players need to bear in mind and we outline the strategic options for the independent aftermarket. And readers may like to know that the nenull two publications in our series of studies are com nulling out in the autumn and winter of 20nullnullin which we will enullmine success factors from the customer perspective and shine a light on the tire trade. PREFACEAlexander BrennerRoland Berger Patrick HeinemannRoland Berger Jens ThieleHSH Nordbank Julian-Kaya Bagbasi, MBAHSH NordbankCoverphoto: kiri/Adobe StockPhotos: Roland BergerGmbH, HSH NordbankAG3Competitor pressure is rising, digitalization is challenging tried and tested business models, online trading is cutting the ground out from under the feet of traditional revenue channels. And the automotive aftermarket is undergoing a process of consolidation that is changing the face of the market forever. A SEA CHANGE IN THE MARKET1The European automotive aftermarket is still growing despite all the disruption it currently facesnullThe market volume is forecast to increase by null2nullevery year through 202null Alreadynullthe competitive landscape in Europenulls automotive aftermarket is characterized by the bignull internationally operating parts wholesalers. nullompanies with annual revenues in enullcess of Enull nullbillion are enulleriencing stable growth and boast the highest EnullTnullA margins. On this measure of profitabilitynullthe benchmark for large players nullbove Enull null0 million in annual revenuesnullis a nullnull marginnullfor the smaller players nullelow Enull null0 million in annual revenuesnullthe margin is 2nullnull The big players can grow their revenues above the industry average and tend to have higher EnullTnullA margins predominantly as a result of their larger purchasing and revenue volumes. nullembership of purchasing networks allows the midnullize players to benefit from similarly favorable procurement termsnull though not on the same scale as the big industry players. Another advantage the industry behemoths have is their pannulluropean presencenullwhich puts them in a position to profit from the growth in different European submarkets and to balance out the opportunities and risks of their pannulluropean enullansion.Other strengths of the large distributors of aftermarket spare parts for passenger cars include effective warehouse and logistics management. Their dense network across most European countries nullwith not more than null kilometers separating locations in most cases nullenables them to keep repair shops well supplied with up to eight deliveries a day. This makes it easy for them to meet customersnullrising enullectations in respect of servicenulla challenge that the smaller and midnullize players also face. Theynulltoonullneed to turn their attention to optimizing their warehouse and logistics processes. Europenulls automotive aftermarket enullibits certain differences between east and west. Eastern Europe is a growth market for the nullnull The development of the car parc and the age of vehicles there make this an obvious conclusion to draw. The number of cars in nulllandnullthe nullzech nullepublicnull nullungary and nulllovakia increased by 2null between 20null and 20null. null nulllandnullalmost nullnullof cars are more than ten years oldnullin the nullech nullepublic itnulls around nullnull Added to that is the fact that there are far fewer OEnulls present in these countries and that the variety of badges on the market is smaller nullwhich reduces the level of complenullty in the aftermarket.The independent aftermarket in Eastern Europe: fast growing revenues, relatively low profitabilityAgainst this backdropnullrevenue growth among Eastern European auto parts distributors is higher than for their peers in Western Europenullalthough EnullTnullA margins are lower. nulleasons for the lower profitability lie mainly in the fact that customers are more price sensitive and have a relatively comprehensive range of nonullame and private label parts to choose from. null these marketsnull remanufacturing also plays a greater role than in Western Europe. null spite of the somewhat lower levels of profitabilitynullthe sales markets of Eastern Europe are firmly on the radar of Western European industry players in the contenull of their enullansion plans. That saidnullthese plans are not easy to realize because both domestic players nulllike nullter nullars in nullland or nullninullAuto in nullngary nulland the subsidiaries of pannulluropean players are already active there. These local heroes are firmly established on the markets and use their firstnullover advantage to good effectnullenullloiting their knowledge of the vehicles in their marketsnullfor enullmplenullas well as their relationships with repair shops. 5A sea change in the marketThe consolidation wave has hit the European aftermarket with a marked rise in deal numbers observed recently. But the brisk M&A activity is poised to transform Europes market structure to the benefit of the big players. EUROPE: AN M&A HOTSPOT2Europe: an M&A hotspotEuropenulls automotive aftermarket is still highly fragmennulltednullthe three leading players together accounting for around nullnullof the market. null contrastnullthe consolidanull tion process in the null is already well advancednullwith the top nullplayers boasting a combined market share of al nullmost nullnullOne reason for the European marketnulls fragmentation lies in its great diversitynullnullot only do the car parcs in the individual nations vary considerably in terms of vehicle age and price segmentnullbut the needs and enullectations of repair shops and their customers are often comnull pletely different as well. Warranty arrangements are also poles apart with respect to the norms and customs in the various international markets. And then there is the wider spectrum of badges present within Europenullwhich serves to make supplying parts in the aftermarket a relanulltively complicated business. Mega-deals on the up: the big players are going shoppingnull defiance of these underlying circumstancesnullthe con nullsolidation wave does appear to have hit the European automotive aftermarket nownullwith nullA activity on the rise for the past several years A. There were null deals in the 200null20null period.nullThe number of transactions is strikingnullbut so is a new nulluality they displaynulla consis nulltent rise in meganulldeals involving big players. These innulldustry heavyweights can often be found buying up smaller players. nullt there have also been takeovers bet nullween the big players themselvesnullewed on a countrynullynullcountry basisnullthe following pic nullture of nullnullA activity in the European automotive afternullmarket emergesnull The nullnull is a hotspot with nullnull dealsnull alongside nullermany and the nulletherlands with null deals each B. There are several enulllanations for this focus of takeover activitynullnullor one thingnullthe null and nullermany are attractive markets per se with a car parc of null.nulland null.nullmillion vehiclesnullrespectively. And for anothernullthe null is the ideal anchor point for nullorth American players wanting to enulland into Europe. The buyer structure in the nullnited nullngdom is similar to that in their home market. And there is no language barrier. This makes the null the ideal starting point for nullnullplayers from the null and nullanada seeking to drive their enullansion into nullentral Europe and the big markets of nullancenullnullermany and the nullnelunullstates. Thatnulls not to say that parts traders located in those countries arennull attractive takeover candidates in them nullselves. The acnulluisition of manullr nullentral European play nullers has often been pursued in the interests of enullloiting their network to enulland into markets further east.1 Within these 65 transactions, there are 50 complete takeovers, seven majority shareholdings, one 50/50 shareholding, four minority shareholdings and three deals that cannot be cleanly allocated to any one of those categories. The number of transactions is actually likely to be higher because smaller deals often do not turn up in the statistics or they may be silent interests. 7Source: Mergermarket, Roland Berger, HSH Nordbank Deals per year in Europe, 20052017Mergers and acquisitions in the European IAM have seen a noticeable rise over the past several years. More and more mega-deals are also being struck. ADeals per year15141312111098765432102005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20172 2 2659131571 1 1 1Source: Mergermarket, Roland Berger, HSH NordbankDeals per country in Europe since 2005The UK, Germany and the Netherlands are M&A hotspots. The UK is an especially popularchoice for North American players as an entry path into the European market. B2 Ireland14 UK 12 Netherlands12 Germany1 Estonia1 Czech Republic 1 Romania 1 Spain2 AustriaBelgium55 Italy5 France2 SwedenMergers and acquisitions across borders in the Europeanautomotive aftermarket are on the rise: 39 of the 65 M&A transactions recorded since 2005 are classed as cross-border deals. North American companies have been particularly active.DEALS WITHOUT BORDERS 3