Merger and acquisitions
(M&As) 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.
mandatorily made companies realign their portfolio capabilities and transform
their business models to handle the market disruptions. More then ever now
mergers and acquisitions are going to be the inorganic way of growth for
companies as it provides an instant head start.
The impact of
pandemic will be there for quite sometime 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 which merge or get acquired,
will see their efficiency increase, as economies of scale will work in their
disruptions in the market have forced companies to re-look at their strategies
on both macro and micro levels and deciding on which 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 synergies
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
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 a knowledgeable team, re-evaluating product supplies etc.
Although the adoption of electric vehicles (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 particularly in the 2-wheeler and 3-wheeler
segment, one can witness the pace of M&A rising over the years as many of
these start-ups are still 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 their capabilities as times are challenging and hard. And a
robust merger & acquisition strategy may be the best way forward for many
Manav Kapur is the Executive Director of Steelbird International