Successful M&A Projects in the Chinese Automotive Supplier Market

The Chinese automotive supplier market is undergoing major transformation. Rapidly evolving technology trends, such as new energy vehicles, software-defined vehicles and autonomous driving, are reshaping the market, as is rising competition. Mergers and acquisitions (M&A) are playing a critical role in this environment, helping automotive suppliers navigate challenges and leverage growth opportunities.

Recent workshops conducted by PwC and attended by top-tier suppliers from the US and Europe provided deep insights into market trends, M&A challenges and post-merger integration strategies, as well as ways to avoid potential pitfalls. This article summarizes some key takeaways from the workshops and discussions with senior executives.

Market trends and dynamics

The Chinese automotive supplier market is becoming increasingly complex and competitive. Domestic new energy vehicle (NEV) brands continue to strengthen their position, with NEV penetration surpassing 50% in mid-2024. This growth is driven mainly by battery electric vehicles (BEVs) and the rapid rise of plug-in hybrid electric vehicles (PHEVs), which have shown high compound annual growth rates in recent years. Meanwhile, foreign brands are losing market share due to changing consumer behavior unique to China, not to mention intense domestic competition. Additionally, Chinese OEMs are expanding overseas using diversified strategies, such as dealer acquisitions, joint ventures and product diversification.

M&A challenges and due diligence 

Navigating M&A in China’s automotive supplier sector presents unique challenges, particularly when dealing with privately owned enterprises. Private entrepreneurs may have varied reasons for selling, requiring a specially tailored and long-term approach, one that often includes one-to-one communication between owners. Non-price factors also frequently play a role in the negotiations, and it is crucial to visually demonstrate value to the targeted company and maintain clear guidance throughout the process.

Key due diligence topics include financial valuation risks, such as EBITDA adjustments, working capital definitions, and identifying debt/debt-like items, to ensure accurate evaluation of equity value and other final considerations. Commercial risk assessment is equally vital, involving analysis of sales growth drivers, margins, product mix and cost structures. Additionally, possible compliance issues – such as social security contributions, tax payments and related-party transactions – require scrutiny to avoid becoming post-deal pitfalls.

Sustainable success and post-integration

Success in M&A projects relies heavily on effective post-deal integration and the realization of synergies. Key success factors here include verifying the legal and operational transfer of ownership, aligning stakeholders on immediate priorities and establishing interim governance and reporting mechanisms. Optimizing processes to benefit from cost savings and revenue synergies, fostering cultural alignment and integrating critical operational and IT systems are essential if the organizational integration is to go smoothly.

By Day 100 post-closing, core risks must be resolved to stabilize operations, and a long-term focus should be driving ongoing synergy realization for sustained value creation. Additionally, measures to harmonize accounting treatments, align reporting standards from local GAAP to group standards, and enhance automated reporting should be in place to contribute  to improved efficiency and a smooth consolidation of group reporting.

A case in point: An automotive group’s strategic acquisition

A compelling example of a successful M&A transaction is PwC's assistance to  a leading European automotive supplier, which was assisted by PwC in November 2024 as it acquired a controlling interest in a privately owned Chinese enterprise. The buyer, a global leader in acoustic and thermal management solutions with multiple production facilities worldwide, faced a number of challenges in Asia due to shifting market dynamics and rising competition from domestic NEV brands. As a result, it wanted to strengthen its position by entering the supply chains of Chinese NEV manufacturers.

PwC’s Corporate Finance team played a fundamental role by conducting a thorough target screening, applying rigorous transaction evaluations and supporting negotiations and the due diligence process. The acquisition broadened the buyer’s market access, especially to Chinese OEMs, enhanced its cost competitiveness, and unlocked cross-selling opportunities.

Conclusion

Successful M&A in the Chinese automotive supplier market requires a deep understanding of the market’s unique challenges as well as thorough due diligence and well-executed post-merger integration if challenges are to be overcome and long-term value realized. Recent examples show that targeted M&A, supported by professional advisory services, can drive growth and profitability in the evolving Chinese automotive supplier landscape. Companies interested in navigating this market effectively and exploring successful M&A strategies are encouraged to contact the authors for detailed insights and customized support.