The Merits of M&A as a Strategic Tool for Opportunistic Value Creation: A Study on the Potential Merger Between Aptiv & Veoneer

Abstract

The automotive industry is currently undergoing an unprecedented period of transformation, as automotive manufacturers are in fierce competition with regards to introducing semi- and fully autonomous vehicles into urban communities. With the implementation of autonomy into vehicles, follows new requirements for the suppliers of the industry. Different approaches from suppliers, who are trying to position themselves optimally to capitalize on this new movement, have resulted in different outcomes for the respective suppliers. A company like Aptiv is widely considered to be the best-positioned company for capitalization of the enormous growth potential. In contrast, a company like Veoneer has lacked behind with regards to developing adequate capabilities for the automotive industry of the future. With Veoneer finding themselves in a less attractive situation, this thesis seeks to investigate the merits for Aptiv of using M&A as a strategic tool for opportunistic value creation through an acquisition of Veoneer. In order to appropriately assess the merits of employing M&A as a tool for value creation in this context, an evaluation of the strategic fit between the two suppliers was established, which found a strong rationale for a potential merger that would enable a stronger combined platform. Subsequently, the thesis draws upon literature and frameworks from corporate finance and strategic management to assess the macro- and micro-level dynamics that shape the industry. Here it was found that albeit there is a positive outlook for the industry, technology companies with different capabilities are threatening traditional suppliers. With regards to the internal capabilities of Veoneer, the thesis found that the company does have certain capabilities which represent unique value propositions for its customers. However, the company has been financially underperforming. Despite the historical underperformance, recent developments indicate a positive long-term outlook for the company. In continuation of these considerations, substantial potential for synergies between the two suppliers was found, which is predominantly attributed to economies of scale and financial benefits from combining the two entities. On the basis of these findings, the maximum purchase price for Veoneer that Aptiv can justify was found to be USD 1.989.5m, comprised of a stand-alone value (intrinsic value) of USD 1,275.8m and value of synergies of USD 713.8m. However, given Veoneer’s pressing situation, it was found that Aptiv can make use of opportunistic negotiating levers in order to lower the purchase price, which ultimately yields a value creation in the range of USD 202.2m and USD 329.9m for the shareholders of Aptiv through an opportunistic acquisition of Veoneer.