12021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
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The European aftermarket –Transformation of a whole industry accompanied by COVID-19
22021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
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Dr. Robert Eirich
Project Manager, Automotive
+49 160744 - 8757
Munich
Source: Roland Berger
Alexander Brenner
Senior Partner, Global Head of Aftersales
+49 160744 - 4318
Hamburg
32021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
Martin Conrad(CEO of PV Automotive Group)
The automotive aftermarket has to cope with a strong consolidation wave
Source: Statement Martin Conrad
In the meanwhile, more
heavyweights are active in the
aftermarket. That is one
consequence of the numerous
takeovers in the last years.
42021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
After a dip of M&A activities in 2019, the consolidation trend continues with 17 deals closed in 2020
Source: Roland Berger
Deals per year in Europe for IAM whole-salers
Stu
dy e
xcer
pt
Deals per country in Europe since 2005
Deals per year in Europe 2005-2020
115 deals in total for 2005-2020
Germany is a hotspot with 27 deals, alongside the Netherlands andUK with 15 deals
Trend expected to continue after Covid 19 pandemic has been settled – esp. consoli-dation of mid-sized players
Denmark
France
Ireland
Italy
Norway
Austria
Poland
Romania
Sweden
Spain
Czech Republik2
1
7
27
2
8
15 3
1
2
2
2
15
UK
GermanyBelgium
Netherlands 8
2005 2007 2009 2011 2013 2015 2017 2019 2021
2
1 1 1 1
2 2
6
7
5
9
13
15
19
14
17
3
52021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
Within the last years, different acquisitions further consolidated the competitive landscape – Medium players trying to follow up
2017
2019
2017
2018
2017
2017
2018
2018
70
117
171)
161
1,093
62
n/a
11
Lorch
Swiss Automotive Group
Profi Parts
AAG
LKQ Corp.
Stahlgruber
Stahlgruber
Arrowhead
Martika
Auto-Teile-Pöllath
A. Jakobs
Hennig KFZ-Teile
Stahlgruber
Optimal
Rücker KFZ-Teile
Ratioparts
2020 2The Goodyear Tire & Rubber Company Reifen Baierlacher GmbH
Source: S&P Capital IQ; Bundesanzeiger; Roland Berger
1) 2015; 2) Revenue of acquired company by year of acquisition
Year Revenue2) [EUR m]Acquirer Acquired company
Sel
ectio
n
62021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
This process created a competitive landscape, that consists of several large players with turnover >0.6 bn EUR
20
3
6
3
12
5
4
0.4
4.7
2.2
0.8
1.6
0.8
1.5
1.4
Source: Company information; Capital IQ; Orbis; AAG; Wolk; Roland Berger
1) Some numbers are only available for 2017
1
Revenue, 2018 [EUR bn]1)
Countries covered [#]
HQ –Country
72021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
Although the consolidation process in Europe recently gained momentum and speed, there is still further room for consolidation
Combined market share of top 3 players
Consolidation stages2)
Industry consolidation
curve1)
Maximum1)
Ø 45%1)
Minimum1)
0%
50%
100%
Industry consolidation lifecycle (time)
Europe
US
Stage 1Opening
Stage 2Scale
Stage 3Focus
Stage 4Balance & Alliance
1) Average based on the market share of the three largest companies of the total market based on Value-Building Growth database across multiple industries (25,000 companies);2) Average cumulative timeframe for the consolidation curve c.25 years across multiple industries, however, variations may occur based on industry
Source: Value-Building Growth Database; Harvard Business Review (December 2002 issue) "The Consolidation Curve"; interviews with market participants
82021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
Mainly since 2016
Within the consolidation process, three major strategic moves could be observed happening either in parallel or sequentially since 2011
Nationalconsolidation
Pan-Europeanconsolidation
Trans-continentalconsolidation
Strong players in one country acquire small and local players
Goal: Increase network coverage and reach as well as accomplish economies of scale
Leading national players expand to a European level by buying local players in other countries
Goal: Increase overall revenues and European market share
Mainly US players entering the European market
Goal: Accomplish aggressive growth targets and increase global market share
Depending on market since 2011
1 2 3
Source: Roland Berger
92021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
Especially in Southern and Central European countries, the consolidation has not peaked yet and leaves room to maneuver
Consoli-dation process for specific markets1)
Stu
dy e
xcer
pt
Source: Roland Berger
Consolidation process in selected markets
Most European countries are still in 'Accumulation' Phase
Polish market especially attractive due to its car parc size and starting point for Eastern Europe expansion activities
Only Nordics and UK already have a high market concentration – UK dominated by US players
Southern Europe and SEE not yet advanced and offer good opportunities for potential M&A
1 National consolidation
1) Analysis until 2019
102021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
Cross-border deals and geographi-cal focus1)
Regional targets are the focus of the expansion plan of the big players resulting in many cross-border deals
48 of the 76 M&A transactions recorded as cross-border deals
Geographical developments
Source: Roland Berger
Number of cross-border deals
Significant increase in cross-border deals in 2016-2017 in particular
North American companies have been particularly active –20 out of 39 deals
Bidder
Bidder & target
1
1
1
2
1
1
6
3
4
10
9
4
5
2009
2017
2008
2006
2012
2011
2007
2013
2010
2014
2015
2016
2018
2019
0
2 3 Pan-European and trans-continental consolidation
Stu
dy e
xcer
pt
1) Analysis until 2019
112021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
Buyer universe and valuation levels1)
Stu
dy e
xcer
pt
As acquisition targets have been relatively cheap, auto parts distributors are now also on the radar of private equity firms
61 out of 76 deals conducted by strategic investors
Valuation levels in Europe
Source: Roland Berger
Players in the buyer universe
In parallel, involvement of PE firms in M&A activities has increased since 2012
Valuation levels in Europe are still comparatively low
9
61
6
Number of deals
Financialinvestor
Strategic investor
Financial/strategicinvestor
1.4x 0.8x 0.2x
MinimumMedianMaximum
Revenue
EBITDA 17.4x 9.8x 3.4x
1) Analysis until 2019
122021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
Changing customer landscape for auto parts distributors
Stu
dy e
xcer
pt
Additionally to the consolidation process, customer behavior and the importance of customer groups are changing
Source: Roland Berger
Customer landscape of auto parts distributor
Supplying auto repair shops and serving the feeder business as biggest revenue sources for IAM players today
Number of auto repair shops has been shrinking since 2013
Importance of intermediaries is increasing as an important segment in the B2B customer spectrum
1 Current volume; additional potential not included2 Includes insurers, leasing companies and service providers for insurers/repair shops and online service portals
132021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
Although the study series mainly focuses on the wholesale level, all aftermarket players are directly or indirectly influenced
A consolidated wholesale level gains market power due to higher volumes and will put pressure on suppliers and OEMs
Consolidated wholesale players will further optimize their processes and performance and with it save money to "go for war"
Consolidated players with strong financial power can further push backward or forward integration with it putting pressure on OEMs and OES as well as workshops
In contrast, due to local market characteristics and direct customer contact, OEMs and OESwon't be able to leapfrog the wholesale level in the IAM
Overall customer characteristics are changing, and consolidated players will try to cover future profit pools (fleets, leasing companies etc.)
Source: Roland Berger
142021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
Winners of the consolidation wave and the changing environment have not yet been sift out
Source: Statement Philipp J. Hess
Philipp J. Hess(Proprietor of Hess Group)
The value chain has not really
changed but the relationship
between players and the
importance of different levels in
the value chain have changed
the rules of the game.
152021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptxSource: Roland Berger
Within the consolidation process, COVID-19 also has an impact on the Aftermarket – We expect the IAM as the 'white swan' in post-COVID time
Performance resilienceI
IAM to be more resilient than both new vehicle sales and OEM Aftersales driven by the stability of the older car parc
II Structural change
The ongoing structural changes in the IAM in Europe will be significantly accelerated
Supply chain resetIII
GLOCAL will become the new GLOBAL, with aftermarket players having access to their local OE sister-divisions' production
Digital disruptionIV
Digitalization will rapidly transcend from being a 'to-be' state into a reality of doing business – both in terms of client access as well as ensuring an air-tight supply chain
162021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
> Overall level stays constant
> Share of older and IAM relevant car parc will increase, leading to increase in demand
> Preference of private transport over shared modes will go up
> But net effect will be constant because of lower mobility (driven by unemployment, etc.)
> Most non-critical repairs/maintenance will be avoided/ postponed as opposed to crash-repairs
> Spend on non-essentials like upgradations, accessories and tuning will be probably avoided
Although short-term demand has dropped, IAM GVA is expected to only marginally reduce vs. historic levels
Source: Roland Berger
Car parc
Mileage
Willingness to spend
COVID-19 has shown some impact on major market drivers
Impa
ct o
n m
ajor
Driv
ers
1 Performance resilience
172021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
European debt crisis
Financial crisis
As seen in the 2007-08 financial crisis and the European debt crisis, the car parc is rather resistant to negative impact of lost car sales
Resistant to economical shocks because of scale effect
Passenger Vehicle parc New Passenger Vehicle sales
Index 2006 value = 1.0
Average PV age increase of approx. 1-1.5 yrs
Source: IHS, ACEA, Roland Berger
As new car sales drop the
average age of the vehicle parc increases
Additionally, economic disruptions such as the 2007-2008 financial crisis might
have a higher impact on younger used car volumes (ages 0-3) than older used cars (ages 6+)
1 Performance resilience – Car parc
2006 201020092007 2008 2011 2012 2013 2014 20162015
0.4
0.9
0.5
0.6
0.7
0.8
1.0
1.1
1.2
1.3
182021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
One of the most pronounced expected impacts in the IAM is the acceleration in the structural market changes in Europe
> Increasing consolidation and integration> Increasing relevance of intermediaries> Growing relevance of life cycle management
Market structure
> Need to retain competitiveness through lean operations and strategic pricing
> Increasing need to access to relevant customer data > Need for specialized and technical knowledge to stay up-to-date
Stakeholder needs
> As Western targeting the growing Asian market, Asian players are entering EU and the US> Big players are moving towards high-value added segments> Players are increasingly focusing on creating direct contact with workshops> Despite multiple initiatives, no 'winning' standalone e-commerce model so far by suppliers
> Potentially increasing penetration of OEMs in the IAM with new 'rules of the game'
Competitor landscape
> Electricals/electronics driving future AM growth
> Differential regional product strategy needed considering regional maturity, parc structure & quality/price sensitivity
> EV parc volume still sub-critical, but showing readiness important for success
Tech-nology
COVID-19 impact
Deceler-ation
Acceler-ation
Deceler-ation
Acceler-ation
Deceler-ation
Acceler-ation
Deceler-ation
Acceler-ation
Can move into both directions depending on priorities defined by the EU/national gov'ts reg. CO2 targets
2 Structural change
Source: Roland Berger
192021_TAYSAD_Transformation of an industry_Roland Berger_vF.pptx
… react to the consolidation on the wholesale level?
… stand one's ground against COVID-19 impact?
… integrate new products in your portfolio and expand
the portfolio with customer preferences?
… maintain price control and customer ownership in the
advent of 3rd party intermediaries?
… take the workshops and service partners with you on the journey towards a digitized future?
Today's accepted principles may no longer be valid in the future –Are you well prepared?
Source: Roland Berger
How
to …