Growth in automotive supply chain M&A driven by increased UK car production

Car Manufacturing

Fast-growing UK car production is resulting in increased growth in automotive supply chain mergers and acquisitions (M&A), industry advisor KPMG reported on Wednesday.

KPMG, a provider of audit, tax and advisory services, said that annually, the British automotive industry contributes GBP60.5bn in revenue to the UK economy and accounts for 4% of GDP. The sector produced 1.6 million cars and commercial vehicles and 2.6 million engines in 2013. It employs 731,000 people and is reportedly the fourth biggest automotive industry in Europe, as well as being the second largest premium manufacturer.

In the last seven months, KMPG has reportedly acted as corporate finance advisor to vendors of automotive suppliers on five separate successful deals. According to John Leech, KPMG’s UK Head of Automotive, this activity is expected to increase and is being driven by the growth in UK car production, especially Jaguar Land Rover. As a result, automotive suppliers are looking to attract investment to expand capacity and set up overseas facilities.

M&A specialist at KPMG, Simon Heath, said UK car production is expected to reach two million vehicles in 2017, which has resulted in heightened interest from private equity. The UK automotive industry is also attracting buyers from automotive suppliers from countries such as US, China and Europe. An on-shoring trend is also said to be gathering momentum as UK car manufacturers have shown a desire to source over GBP3bn of parts onshore, which were previously supplied from overseas.

Heath added that “Overseas trade buyers are often under pressure to follow and co-locate with their manufacturers and so many pure Asian or North American suppliers are contemplating European acquisitions to grow their global footprint. At the turn of the year, Ford announced plans to cut its number of suppliers by 40% so the pressure to internationalise is intense.”

“The UK has risen up the list of favourable locations within Europe to invest in. We have a clear growth story, premium carmakers enjoying attractive margins and the most joined-up industry and government in Europe with a focus on supporting innovation such as low-carbon vehicles.”

According to KPMG, the most recent figures from from the Society of Motor Manufacturers and Traders (SMMT) show that demand from the EU resulted in car production growing by 12% in March this year.

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