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Disruption is familiar territory for Canada’s auto industry. Yet as new trends, economic shifts, trade issues, and technological advances come into focus, more challenges and opportunities lie ahead.
The state of Canada’s auto sector Recalculating the route ahead
February 2019
kpmg.ca/corporatefinance
Automotive trends and transactions
Deals driver
No doubt, the industry has reached an inflection point. It’s a fork in the road formed by both domestic and international factors, not the least of which being General Motor’s decision to close its Oshawa plant, cross-border tariffs, customer trends, and trade challenges south of our border. Together, these factors influence how car makers respond to market demands and reshape the roles that both original equipment manufacturers (OEMs) and their suppliers play within an ever-evolving supply chain.
The Canadian advantage
GM’s withdrawal may have been a warning shot, but there’s reason to remain confident in our domestic industry. Canada’s globally-competitive supply chain, combined with a skilled and eager talent pool, keeps it poised to remain a dominant global player.
One cannot disregard Ontario’s role in Canada’s success. Beyond being the only North American state/province with five OEMs with manufacturing facilities in one region – Ontario is home to a dozen leading manufacturing plants, its own extensive and experienced supplier network, a primed talent pool, and some of the world’s top technology and R&D hubs. This makes it a prime destination for investors and a Canadian hot spot with tremendous economic development potential.
Even with our advantages, the push among car makers for more cost-effective production, lower labour costs, and automotive innovation has Canadian stakeholders fighting hard for attention all the same. As such, we cannot be content with keeping step with our competitors, but instead seek to lead the charge. Ontario’s auto industry stakeholders and parts suppliers must embrace innovation, adopt new and more industry-friendly approaches to design and manufacturing, and secure our deserved position as a leader in the knowledge economy, if we are to leave our stamp on next generation of car manufacturing.
The public mandate
While OEMs declared themselves responsible to set the technological agenda in past decades, a majority of Canadian executives are convinced that it’s industry regulators who will set the agenda moving forward.
No doubt, there is a clear mandate by many leading governments to reduce the industry’s reliance on fuel and pursue cleaner, more tech-savvy alternatives. Canada itself has pledged to ensure nearly a third (30%) of new vehicles sold by 2030 are EVs, and changes are anticipated to come out of its ongoing greenhouse gas emission standards review for 2022 to 2025 model years for light duty vehicles. The push for cleaner
1© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
vehicle technologies is also evidenced outside our borders through initiatives like former US‘s corporate average fuel economy (CAFE) standards, China’s National Development and Reform Commission (NDRC) reforms endorsing the production of electric vehicles.
The U.S.-Mexico-Canada Agreement (USMCA) is also poised to further reshape industry supply chains, pricing strategies, and investment decisions across North American partners. That’s not to say the auto industry’s future is completely in the hands of national leaders, but one can’t discount the role government is playing in directing its growth.
Help from on high
With talk of regulators setting the agenda, the question remains: What role do Canada’s own leaders have to play in shaping (and supporting) our domestic auto industry? While support is always welcome, it’s worth noting that the Canadian Government has arguably done its share to nurture the auto sector’s growth through manufacturing, production, and R&D tax credits; not to mention specific financial support such as
Federal and Provincial funding like the $200 million to Toyota Canada in respect of their $1.4 billion plant upgrades.1
Even still, Parliament Hill has a continuing responsibility to stand up for Canada’s auto sector when it comes to cross-border tariffs and the ongoing fight for free trade in the Americas – the latter of which will be absolutely essential to its ongoing health. Here again, the Canadian government has risen to the challenge by maintaining a vigilant watch on its neighbours. That said, with political forces still in play and the USMCA still subject to change, that watch is far from over.
Building on this, the government has a part to play in preparing Canada for the next generation of mobility. Indeed, as the visions (and demands) for “smart cities” and integrated mobility models come into focus, Canada will need to invest in the infrastructure to support autonomous vehicles, electrified roads, “mobility as a service” (MaaS) offerings (e.g., Uber and Lyft), and a more data-driven transportation ecosystem. The so-called “Mobility 2030” is on arrival, and it will take public and private partnerships to take full advantage of the “smart city” visions ahead.
Automotive EV/LTM EBITDA last 3 years
-
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
20.0x
22.0x
24.0x
26.0x
28.0x
30.0x
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18
GM
Magna
Johnson Controls*
Ford
BMW
Toyota
Daimler
*Reflects the reclassification in November 2018 of the financial statements for the 12 months ended September 30, 2016.
Source: https://business.financialpost.com/pmn/business-pmn/toyota-canada- plants-to-get-1-4b-upgrade-ottawa-ontario-to-pitch-in
2© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Company comparable set (C$M)
Company name Market capitalization latest
Total enterprise value latest
LTM tangible book value/share
LTM total revenue
LTM EBITDA LTM Diluted EPS excl. extra items
Toyota Motor Corporation (TSE:7203) 223,207 414,670 82.84 363,764 52,748 10.97
Volkswagen AG (XTRA:VOW3) 104,902 325,642 153.15 356,124 29,752 39.65
Daimler AG (XTRA:DAI) 74,370 258,174 85.97 249,143 24,000 12.83
Bayerische Motoren Werke Aktiengesellschaft (DB:BMW) 69,555 197,530 127.59 148,107 18,909 18.6
General Motors Company (NYSE:GM) 63,008 178,471 30.90 195,337 27,489 1.02
Honda Motor Co., Ltd. (TSE:7267) 62,040 124,261 52.66 191,707 17,548 7.77
SAIC Motor Corporation Limited (SHSE:600104) 61,245 62,174 3.64 181,750 7,799 0.63
Nissan Motor Co., Ltd. (TSE:7201) 41,942 129,445 16.67 144,122 14,037 2.23
Ford Motor Company (NYSE:F) 40,613 214,048 11.78 213,986 15,459 1.23
Fiat Chrysler Automobiles N.V. (BIT:FCA) 29,776 34,820 (2.37) 171,973 16,170 2.99
Total 770,658.3 1,939,235.1 562.83 2,216,012.6 223,909.4 97.92
Source: Capital IQ as at December 31st, 2018
3© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Public comparable companies (C$M)
Source: Capital IQ as at December 31st, 2018
4© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Capitalization LTM multiples NTM multiples
Company Country Market capitalization
Enterprise value ("EV")
EV/revenue
EV/EBITDA
P/E EV/EBITDA
EV/EBIT
P/E
American Axle & Manufacturing Holdings, Inc. United States 1,692 6,150 0.7x 4.0x 3.3x 4.0x 7.4x 3.7x
BorgWarner Inc. United States 9,873 12,301 0.9x 5.5x 13.8x 5.1x 6.8x 7.6x
Cooper Tire & Rubber Company United States 2,209 2,418 0.7x 5.9x n.m. 5.1x 8.6x 13.5x
Cooper-Standard Holdings Inc. United States 1,507 2,168 0.5x 3.9x 7.4x 4.4x 6.9x 7.6x
Dana Incorporated United States 2,691 5,050 0.5x 4.5x 9.5x 3.5x 5.0x 4.3x
Dorman Products, Inc. United States 4,047 3,979 3.3x 15.2x 26.1x 13.6x 15.4x 19.9x
Ford Motor Company United States 41,524 29,578 0.1x 1.9x 8.3x 1.9x 3.6x 5.7x
General Motors Company United States 64,422 64,602 0.3x 2.4x n.m. 2.1x 4.5x 5.7x
Gentex Corporation United States 7,228 6,792 2.9x 8.4x 12.7x 7.8x 9.3x 11.6x
Gentherm Incorporated United States 1,903 1,973 1.5x 11.1x n.m. 9.1x 13.2x 16.3x
Harley-Davidson, Inc. United States 7,507 7,708 1.0x 5.3x 11.2x 5.6x 7.3x 9.5x
Johnson Controls International plc Ireland 37,386 53,013 1.3x 8.7x 13.4x 11.2x 15.1x 15.4x
LCI Industries United States 2,299 2,590 0.8x 7.2x 12.2x 6.1x 8.4x 10.6x
Lear Corporation United States 10,759 11,616 0.4x 4.0x 7.1x 3.9x 5.0x 6.8x
Linamar Corporation Canada 2,961 5,046 0.7x 4.4x 4.9x 4.1x 6.0x 4.9x
Magna International Inc. Canada 20,730 26,207 0.5x 4.7x 7.0x 4.4x 6.1x 6.4x
Martinrea International Inc. Canada 931 1,548 0.4x 3.5x 5.2x 3.3x 5.2x 4.6x
Nexteer Automotive Group Limited United States 4,872 4,666 0.9x 6.5x 10.0x 5.0x 7.3x 9.4x
Tenneco Inc. United States 3,023 4,843 0.4x 4.4x 6.4x 2.0x 3.1x 4.1x
Tesla, Inc. United States 77,987 93,282 4.1x n.m. n.m. 16.4x n.m. n.m.
The Goodyear Tire & Rubber Company United States 6,489 14,018 0.7x 5.4x 10.6x 4.8x 8.4x 6.9x
Thor Industries, Inc. United States 3,747 3,451 0.3x 4.2x 9.0x 4.1x 4.5x 7.3x
Visteon Corporation United States 2,378 2,450 0.6x 7.0x 13.1x 5.7x 8.5x 11.2x
Valuation multiples summary
Group average 1.0x 5.8x 10.1x 5.8x 7.5x 8.8x
Group median 0.7x 5.0x 9.5x 4.8x 7.1x 7.4x
Group maximum 4.1x 15.2x 26.1x 16.4x 15.4x 19.9x
Group minimum 0.1x 1.9x 3.3x 1.9x 3.1x 3.7x
Precedent transactions (C$M)
Source: Capital IQ
Valuation multiples
Target AcquirerCountry of target
Closeddate
Enterprisevalue
EV/LTM sales
EV/LTM EBITDA
2018: Top 10 transactions
GKN Limited Melrose Industries PLC United Kingdom 26-Apr-18 15,830 0.9x 9.3x
Federal-Mogul LLC Tenneco Inc. United States 1-Oct-18 6,816 0.7x 7.2x
Stevens Holding Company, Inc. Altra Industrial Motion Corp. United States 1-Oct-18 3,650 3.1x 13.4x
Camso Inc. Compagnie Générale des Établissements Michelin
Canada 18-Dec-18 2,170 1.7x 11.8x
Substantially All Assets of Takata Corporation Key Safety Systems, Inc. Japan 10-Apr-18 2,087 n.a n.a
ZKW Holding GmbH LG Electronics Inc.; LG Corp. Austria 31-Aug-18 1,622 0.9x n.a
Sage Automotive Interiors, Inc. Asahi Kasei Corporation United States 27-Sep-18 1,407 2.2x n.a
L'Orange GmbH (nka:Woodward L'Orange) Woodward Aken GmbH Germany 1-Jun-18 1,054 n.a n.a
Aventics GmbH Emerson Automation Solutions Germany 17-Jul-18 796 1.5x n.a
INA Bearings India Pvt Ltd. Schaeffler India Limited India 22-Oct-18 709 3.4x 24.6x
2017: Top 10 transactions
Mobileye N.V. Intel Corporation Israel 21-Aug-17 20,195 42.0x 120.2x
Harman International Industries, Incorporated
Samsung Electronics America, Inc.
United States 10-Mar-17 12,036 1.3x 10.4x
CLARCOR Inc. Parker-Hannifin Corporation United States 28-Feb-17 5,753 3.1x 17.2x
Metaldyne Performance Group Inc. American Axle & Manufacturing Holdings, Inc.
United States 6-Apr-17 4,376 1.1x 6.9x
Calsonic Kansei Corporation KKR & Co. L.P. (nka:KKR & Co. Inc.); KKR Asian Fund II L.P.
Japan 23-Mar-17 4,050 0.3x 5.2x
Opel Automobile GmbH Peugeot S.A. Germany 1-Aug-17 1,618 0.1x n.a
FTE automotive GmbH Valeo SA Germany 31-Oct-17 1,196 1.6x n.m
Ahlstrom Oyj Munksjö Oyj (nka:Ahlstrom-Munksjö Oyj)
Finland 31-Mar-17 1,052 0.7x 6.2x
Robert Bosch Starter Motors Generators Holding GmbH (nka:SEG Automotive Germany GmbH)
China Renaissance Capital Investment; Zhengzhou Coal Mining Machinery Group Company Limited; Chizhou Zhongan Zhaoshang Equity Investment LLP
Germany 31-Dec-17 817 0.4x 7.6x
AutoChips Inc. NavInfo Co., Ltd. China 2-Mar-17 775 n.a n.a
2016: Top 10 transactions
GETRAG Getriebe- und Zahnradfabrik Hermann Hagenmeyer GmbH & Cie KG
Magna International Inc. Germany 4-Jan-16 3,455 1.4x n.a
SUMEC Group Corporation Changlin Company Limited (nka:Sumec Corporation Limited)
China 29-Oct-16 1,894 0.2x n.a
Affinia Group Holdings Inc. MANN + HUMMEL Holding GmbH
United States 4-May-16 1,749 n.a n.a
CGS Holding a.s. Trelleborg AB Czech Republic 31-May-16 1,662 1.9x n.a
Alliance Tire Group The Yokohama Rubber Co., Ltd.
Israel 1-Jul-16 1,646 3.2x 35.3x
Alliance Tire Europe BV The Yokohama Rubber Co., Ltd.
Netherlands 1-Jul-16 1,564 2.2x n.a
Punch Powertrain nv Ningbo Oriental Yisheng Investment Co., Ltd.; HongKong Oriental Yisheng Investments Co., Ltd.
Belgium 31-Aug-16 1,416 4.9x n.a
Key Safety Systems, Inc. Ningbo Joyson Electronic Corp. United States 2-Jun-16 1,291 n.a n.a
Montupet SA Linamar Corporation France 18-Jan-16 1,233 1.7x 9.1x
Shanghai Huizhong Automotive Manufacturing Co., Ltd.
HUAYU Automotive Systems Company Limited
China 18-Jan-16 906 n.a n.a
5© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Precedent transactions (C$M)
Source: Capital IQ
Recent transactions
KPMG Corporate Finance
acted as financial advisor to theshareholders of Sunrise Service AbbotsfordLtd. on its sale of assets and operations to
December 2018
acted as financial advisor to DixieElectric Ltd. on its sale to MPA
(Nasdaq: MPAA)
January 2019
KPMG Corporate Finance
KPMG advised on the following recent transactions:
Valuation multiples
Target AcquirerCountry of target
Closeddate
Enterprisevalue
EV/LTM sales
EV/LTM EBITDA
2015: Top 10 transactions
ZF TRW Automotive Holdings Corp. ZF Friedrichshafen AG United States 15-May-15 14,472 0.8x 7.3x
Anhui Jianghuai Automobile Group Co., Ltd. Anhui Jianghuai Automobile Co., Ltd. (nka:Anhui Jianghuai Automobile Group Corp.,Ltd.)
China 21-Apr-15 10,524 1.6x n.a
Hyundai Hysco Co. Ltd. Hyundai Steel Company South Korea 1-Jul-15 2,395 0.5x 5.9x
Veyance Technologies, Inc. (nka:ContiTech USA, Inc.)
ContiTech AG United States 30-Jan-15 2,110 0.9x 7.1x
C.R. Laurence Co., Inc. Oldcastle BuildingEnvelope, Inc. United States 3-Sep-15 1,718 n.a n.a
Armored AutoGroup Parent, Inc., Spectrum Brands Holdings, Inc. (nka:Spectrum Brands Legacy, Inc.)
United States 21-May-15 1,686 3.2x 12.3x
Remy International, Inc. BorgWarner Inc. United States 10-Nov-15 1,525 1.0x 9.3x
Eagle Ottawa, LLC Lear Corporation United States 5-Jan-15 926 n.a n.a
Delphi Automotive PLC, Thermal Business MAHLE Behr GmbH & Co. KG United Kingdom 1-Jul-15 910 0.5x n.a
Stackpole International Inc. Johnson Electric International (UK) Limited; JE International Engineered Products Canada Limited; JE International Powder Metal Canada Limited
Canada 27-Oct-15 867 1.8x 10.6x
Valuation multiple summary
Group minimum 867 0.2x 5.9x
Group median 1,654 1.6x 9.2x
Group average 2,697 1.7x 12.1x
Group maximum 14,472 4.9x 35.3x
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7© 2019 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
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