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Measuring M&A Success and Failure

Not long ago, automotive supply executives often thought that the path to growth went directly through the mergers and acquisitions (M&A) department. That was the supposition that drove the buying frenzy during the past 10 years. The argument is based on the premise that the whole is greater than the sum of its parts. That is, when two companies combine, their market growth should out-strip what the companies could achieve independently.

One way to gauge this growth would be through financial metrics. But the recent well-publicized financial shell games some organizations have played indicate that there may be some limitations to relying on financial performance as the sole judge of a companys success (my apologies to Wall Street). Another measure, market share growth, is one to look at as well. After all, one of the benefits of these corporate marriages purported to deliver was market share growth – at least that is what the executives touted in their press releases.

The question then is, were the M&As of the past decade successful? From a market share/market growth perspective the answer is both yes and no. A scan of some of the more prominent acquisitions, while not complete, provides some insight into how successful the buys were. One acquisition that was significant news when it occurred was Lears acquisition of United Technologies Automotive (UTA). Here the results are a mixed bag: Lears instrument panel market share has actually dropped, but its door trim panel share has risen. However, a better measure of Lears venture into the instrument panel market would be its ability to put more electronic content into the instrument panel – more UTA content. The strategy is in place, but the results are still a couple years from becoming clear. What we do know, however, is the fact that the companies keyless entry market share has skyrocketed. This was a commodity that Lear (pre-UTA acquisition) did not produce. On the surface it appears to be an area that Lear was able to grow due to its existing client relationships in other commodities.

An example of a company that leveraged its acquisition well is Autoliv. The company acquired Morton Internationals Automotive Safety Products group in 1997. Here Autoliv was able to expand its share in the airbag module market (22 to 33 percent) and also expand its presence in the seat belt market – a commodity the company supplied prior to the Morton transaction. Continental Teves also got a boost from its 1998 acquisition of the ITT Automotive Brake and Chassis group, benefiting in the North American ABS and brake assembly markets. TRW has had a more difficult time growing the business it acquired in two areas ? ABS and brake assemblies. Yet it has pushed forward with some successful corner module growth, using its existing brake and suspension expertise.

The point of these examples. While M&As may be a quick way to bolster market share, market share still may not be the best method to measure success. A merged companies ability to take a – new – commodity and build its market share through existing customer relationships or the ability to create new markets though modularization may be the real measure of a successful organization.

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Tue. March 21st, 2023

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