The European aftermarket Transformation of a whole ...

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


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Dr. Robert Eirich

Project Manager, Automotive

+49 160744 - 8757

@ [email protected]

Munich

Source: Roland Berger

Alexander Brenner

Senior Partner, Global Head of Aftersales

+49 160744 - 4318

@ [email protected]

Hamburg


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.


After a dip of M&A activities in 2019, the consolidation trend continues with 17 deals closed in 2020


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


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


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


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


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



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


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


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


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



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


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



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


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


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.)



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


> 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


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


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


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



… 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?


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