By Manav Kapur| Sep 17, 2021

How Mergers And Acquisitions Play An Important Role In The Growth Of Auto Industry

Mergers and acquisitions have become one of the most vital strategies for companies within the auto sector to manage the ever-changing market dynamics and be better prepared to cash into future opportunities.

Covid-19 has mandatorily made companies realign their portfolio capabilities and transform their business models to handle the market disruptions. More than ever, now mergers and acquisitions are going to be the inorganic way of growth for companies as it provides an instant head start.

Manav Kapur

The impact of the pandemic will be there for quite some time to stay and one can definitely expect a rise in the M&A numbers due to necessary sector consolidation. Smaller companies’ efficiency will decrease and companies that merge or get acquired will see their efficiency increase, as economies of scale will work in their favour.

Multiple disruptions in the market have forced companies to relook at their strategies on both macro and micro levels and decide on the areas to focus in order to succeed in the future market. Standing still is no more an option as companies will either have to start building stronger capabilities via M&A, partnerships or consolidation routes.

Some of the biggest advantages of mergers and acquisitions have always been to synergise complementary strengths, ensure a stronger growth trajectory, handle the competition in a better manner and enable smoother new market entry strategies. However, it is important to bear in mind that the synergies between the companies should be thoroughly evaluated beforehand to ensure that the strengths complement.

Technological advancements and innovations have provided a competitive advantage in the automotive sector, and companies which have been able to become the forerunners of innovation either through their own merit or through M&A have been able to maintain the market leadership position. For instance, the electrification of vehicles cannot be handled in isolation, as it requires reshaping of strategies, building knowledgeable teams, re-evaluating product supplies etc. Although the adoption of EVs from the consumers’ side has been steady, the market will see a dramatic change in the next few years. More number of companies will join the EV bandwagon, industry participation will increase and global players will look at India market more seriously via their India entry strategy. Therefore, we will see quite a strong movement of M&A in the electric vehicles segment, too, in terms of building vendors, network, infrastructure, innovation and R&D.

Further, with the rise of start-ups in the EV segment, particularly in the 2-wheeler and 3-wheeler segments, one can witness the pace of M&A rising over the years as many of these start-ups are yet to create the perfect EV suitable for all Indian roads and also manage scalability.

A lot of partnerships have been formed in the auto sector based on either technology or to build capabilities/collective intelligence. But there has been a strong focus on next-generation innovations to harness future opportunities. Any company which wants to maintain a healthy balance sheet needs to be transparent about its capabilities as times are challenging and hard. And a robust merger and acquisition strategy may be the best way forward for many auto companies.

The author is Executive Director, Steelbird International


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