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1、Value recovery in the automotive industryMaximising value from non-core assetsFinancial AdvisoryIn todays rapidly changing marketplace,progressive organisations need agile business advisors to help them thrive.At Deloitte Financial Advisory,we connect specialists to create end-to-end solutions to he

2、lp unlock and preserve value in mergers and acquisitions,restructuring,investigations and disputes.Underpinned by Deloittes global insight,local knowledge and breakthrough analytics,we exist to drive smarter decisions in your business defining moments.Read more on D.Global AutomotiveDeloittes Global

3、 Automotive team helps automotive companies execute innovative ideas in exceptional ways.We offer a global,integrated approach combined with business and industry knowledge to help our clients excel anywhere in the world.Contact the authors for more information or read more about our services on D.C

4、ontentsIntroduction 2Automotive non-core assets in the spotlight 3Managing non-core assets to deliver value 4Part 1:Assessing the most appropriate response 5Internal improvement and restructuring 5Divestment 8Part 2:Implementing your response 11Implementing cost optimisation 11Implementing exit/clos

5、ure 13Implementing non-core asset/full disposal 13Now is the time for action on non-core assets 18Endnotes 19Introduction THE AUTOMOTIVE INDUSTRY will look back upon the time of the COVID-19 pandemic as a watershed.This is not only because of the economic downturn it has caused but more because of t

6、he way the crisis has accelerated already evident disruptive trends to the point that a radically different value chain is emerging faster than could have been anticipated.Automobile companies that want to remain relevant and to capitalise on this development need to take bold,transformative action

7、now.Experience shows that both down cycles and major systemic shocks such as the sector is experiencing can present unique opportunities to change the direction of a business.This report outlines how companies can identify and capitalise on assets that will not be part of their core business in the

8、coming decade.Further,it explains how this repositioning can make a company more agile and flexible to take advantage of the wide range of high-growth opportunities that are likely to emerge during the post-pandemic recovery.This report outlines how companies can identify and capitalise on assets th

9、at will not be part of their core business in the coming decade.2Value recovery in the automotive industryA RADICALLY DIFFERENT VALUE CHAIN is emerging in the automotive industry where mobility is purchased as a flexible service and vehicles are connected,autonomous and electric.This is the opposite

10、 of the traditional automotive business model where privately purchased,hardware-focused,human-driven vehicles powered by internal combustion engine(ICE)are the norm.The speed and scale of this change differs across the value chain and different geographies.It is also too simple to say there is a tr

11、aditional model and a future model with clear winners and losers.Emerging disruptive forces present a spectrum of impacts for organisations from positive to negative,and from rapid revolutionary market changes to slower evolution over decades.An example is regional nuances in the adoption of electri

12、c vehicles(EVs),which is anticipated to be much faster across Asia and Europe compared to the United States.While the speed and route to a future automotive value chain will vary,we believe the ultimate destination is common.To prepare your organisation for this change,you need to take decisive acti

13、on around what your future strategy and operational configuration looks like.As part of these considerations,companies(including dealers,original equipment manufacturers(OEMs),suppliers and service providers)will likely identify within their organisation a technology,product line and/or division tha

14、t needs to be reviewed and potentially given a new direction.This is because continuing with the same strategy that benefitted from the strong automotive market of the past is unlikely to optimise returns in this evolving market.Particular attention needs to be paid towards areas that will not be pa

15、rt of your core strategy over the next decade and beyond.Assets identified as non-core will differ in scale.For some companies such assets are a small part of the overall business.For others,a desire to leverage previous investments will mean they constitute a larger portion.Some companies(particula

16、rly suppliers and dealers)may face stark decisions their whole business may fall into the non-core category and require strategic review.Automotive non-core assets in the spotlight3Maximising value from non-core assetsWE PRESENT FOUR potential responses(fi gure 1)to help business leaders,management

17、teams and shareholders understand the options when considering how to manage non-core assets.The responses presented in the non-core asset value recovery matrix consider the intensity of the transformation required and the focus on where your transformation needs to take place:Intensity of transform

18、ation:How fundamental and how intense is the transformation of your business model?Is the transformation evolutionary with incremental gains sought by rearranging the existing business,or is the transformation more revolutionary with previously entrenched positions,ideas and strategies abandoned and

19、 replaced with new ones?Focus of transformation:Is the business model transformation internally focused under the existing ownership structure or does it involve new ownership for the non-core asset to unlock transformation otherwise not possible?No single response is the preferred or only option fo

20、r a business.Each response suits diff erent situations and aligns diff erently to overarching strategic priorities.A combination of approaches will likely be needed to deal with diff erent non-core assets,according to their characteristics and position/prospects.The purpose of this report is twofold

21、.First,we explore factors associated with each response and the potential business impact.Second,we provide guidance on best practice behaviours associated with implementing the response to help businesses maximise the value created through transforming their non-core assets.Source:Deloitte analysis

22、,2020.Deloitte Insights| 1Non-core asset value recovery matrixStrategic,collaborativeFocus of transformationOperational,internalEvolutionRevolutionIntensity of transformationExit/closureFundamental restructure of operations/footprint by closing unprofitable areas to mitigate risks,and freeing up val

23、uable capital and management time.Cost optimisationImprovements to existing operations to drive cash and EBITDA improvements to underpin turnaround/transformation.Full business disposalWhole business consolidation(horizontal or vertical)to create scale and enable transformational margin improvement.

24、Non-core asset disposalsPiecemeal disposal of non-corebusiness units to allow focus on core activities.MAXIMISEVALUERECOVERYManaging non-core assets to deliver value4Value recovery in the automotive industryMANAGEMENT TEAMS AND shareholders need to identify the non-core assets of the business and th

25、e scale of transformation needed to bring the most benefi t from each asset in the short and medium term.Understanding the details of each possible response helps management teams frame their deliberations and prioritise value recovery actions.Internal improvement and restructuringCOST OPTIMISATIONT

26、he principle objective of a cost optimisation project is to maximise business productivity through increased effi ciency and eff ectiveness across the value chain to drive profi t and cash fl ow improvements.Three areas of focus in a cost optimisation project are:1.Process improvement:Assessing busi

27、ness processes to identify areas to drive greater effi ciency and eff ectiveness.2.Resource allocation:Identifying functional areas of misalignment in resource investment and allocation to improve productivity and return.3.Infrastructure and technology enablement:Capturing opportunities to enable gr

28、eater productivity across the business by optimising infrastructure,systems and technology.In dealing with distressed assets,cost optimisation projects are often more useful than narrow-focused cost-out programmes.But delivering a cost optimisation project in the current climate is a challenge.COVID

29、-19 has already driven businesses to cut costs with examples in the automotive industry including,but not limited to,reduction of inventory levels,renegotiation of key contracts,review or delay of capex investments,stopping or reducing performance rewards and a temporary freeze on new hires.However,

30、cost optimisation will be needed to provide businesses with the fl exibility and agility they need to capitalise on any potential market recovery.Flexibility is particularly important in the context of the leverage levels within the largest 20 OEMs and largest 20 tier-1 suppliers,which were higher p

31、re-COVID than directly before the global fi nancial crisis(see fi gure 2).In the post-COVID recovery period,companies will need to focus on cash fl ow to support covenant compliance and to service debt repayments and interest costs.Part 1:Assessingthe most appropriate responseCost optimisationImprov

32、ements to existingoperations to drive cash and EBITDA improvements tounderpin turnaround/transformation.MAXIMISEVALUERECOVERYINTENSITY OF TRANSFORMATION:EVOLUTIONARYFOCUS OF TRANSFORMATION:OPERATIONAL,INTERNAL5Maximising value from non-core assetsWhile short-term cost-reduction initiatives have been

33、 necessary,a more structured and strategic refl ection on the cost base will be required to boost recovery and prepare businesses to thrive during uncertain times.At a minimum,this will include assessing the fi nancial impact of cost reduction and optimisation measures from both a functional and end

34、-to-end process perspective(that is,order to cash,procure to pay,etc.)to understand the cost and the potential value created.EXIT/CLOSUREIf a robust performance improvement process does not deliver anticipated benefi ts or is not considered a viable option,the optimum strategy may be an exit from th

35、e underperforming subsidiary or business unit through a managed wind-down and closure.This response is likely to be seen in organisations facing material and potentially permanent structural Source:Deloitte analysis,2020.Deloitte Insights| 2Automotive industry leverageLeverage(net debt/EBITDA)Levera

36、geTop 20 OEMs LeverageTop 20 Suppliers LeverageIf arobust performance improvement process does not deliver anticipated benefi ts or is not considered aviable option,the optimum strategy may be an exit from the underperforming subsidiary or business unit through amanaged winddown andclosure.Exit/clos

37、ureFundamental restructure of operations/footprint by closing unprofitable areas to mitigate risks,and freeing up valuable capital and management time.MAXIMISEVALUERECOVERYINTENSITY OF TRANSFORMATION:REVOLUTIONARYFOCUS OF TRANSFORMATION:OPERATIONAL,INTERNAL6Value recovery in the automotive industryc

38、hallenges as a result of long-term declining demand for I CE products,as well as suff ering from the short-to medium-term impact of COVID-19.One of the visible impacts of COVID-19 was the closure of factories as measures to protect public health.These actions,combined with depressed demand,have push

39、ed factory utilisation to historic lows with capacity utilisation falling well below normal profi tability thresholds(fi gure 3).Without reductions in capacity,utilisation is expected to recover gradually.Post COVID-19,businesses could be expected to close non-core assets with greater frequency,alth

40、ough this will be dictated by specifi c market dynamics.Note:Straight-time capacity utilisation(STU)is calculated based on individual plant crew structure(i.e.,number of shifts),excluding overtime.Source:IHS Markit,2020.Deloitte Insights| profitability threshold for a production plant is generally t

41、hought to be in the region of 75%-80%406080100Capacity utilization(STU%)2027F2026F2025F2024F2023F2022F2021F2020F20192018201720162015201420132012201120102009200820072006200520042003200220012000FIGURE 3Light vehicle capacity utilisation by region(2000-2027 forecasted)EMEAAsia-PacificAmericasGlobal Tot

42、alSource:Mint,2020.Deloitte Insights| clear trendLast 1 yearLast 2 yearsLast 3 yearsAll 4 years0600400200800(2000)(1400)(1600)(1800)(1200)(400)(200)(600)(800)(1000)Loss-makingsubsidiariesLBIT bn25830443058726(956)(694)(1,946)(126)(621)FIGURE 4Loss-making automotive subsidiaries(Europe)Loss-making su

43、bsidiariesLBIT(most recent)7Maximising value from non-core assetsAn analysis of European loss-making subsidiaries indicates the scale of leakage of operating profi t over the past four years(see fi gure 4).Last year,a total loss before interest and taxes(LBIT)of 4.3 billion was incurred.While there

44、may be a strategic rationale for retaining each business contributing to this fi gure,and while a proportion will return to profi tability through a turnaround process,closure may be the best option for the remainder given other pressures being exerted on the industry.Closing a distressed asset assu

45、mes that a fi nancial restructuring or turnaround is not viable.In many cases,this is because even with a revised capital structure,the forecast P&L cannot eff ectively service the capital structure.Therefore,fi nancial restructuring would kick the can down the road rather than off er a long-term so

46、lution.If a fi nancial restructuring is preferred,the initiative must be coupled with a robust turnaround plan,with a focus on profi tability improvements and cash generation.Failure to do so means there will be inevitably a similar situation of fi nancial underperformance and potential liquidity pr

47、essure in the future.Ultimately,a managed wind-down and closure of a non-performing asset can improve the performance and viability of the overall operations.It can also reduce exposure to non-core businesses or markets,mitigate risks and free up valuable capital and management time.DivestmentThe in

48、ternal improvement and restructuring programmes identifi ed in this report are commonly the fi rst approach adopted by management teams looking to transform a non-core asset.However,the other main consideration is if the business could thrive under diff erent ownership.NONCORE ASSET DISPOSALSFrom a

49、sellers perspective,one of the benefi ts to disposing of(rather than fi xing)a non-core asset is the ability to enact a rapid solution.Disposing of a whole business,division or product line deals with the issue of being invested in a market that is no longer attractive or core in the medium to long

50、term.This response is decisive and conclusive.The disposal of units that require extensive carving out from a fi nancial and operational perspective are more complex and take longer than whole business disposal.However,disposal typically allows faster progress than the extensive time and management

51、attention a turnaround improvement programme requires.Non-core asset disposalsPiecemeal disposal of non-corebusiness units to allow focus on core activities.MAXIMISEVALUERECOVERYINTENSITY OF TRANSFORMATION:EVOLUTIONARYFOCUS OF TRANSFORMATION:STRATEGIC,COLLABORATIVE8Value recovery in the automotive i

52、ndustryAnother benefi t of asset disposal is the realisation of value.However,this depends on the asset.The existence of a buyer pool for the asset and a level of competition among bidders is a determinant of the possible value,and this depends on several factors:current profi tability of the busine

53、ss and the attractiveness of existing commercial contracts with customers(for example,the exclusive distribution contracts dealers have with OEMs,or the contracted position suppliers have on key OEM platforms/models)nature of the underpinning technology and whether this has a level of IP protection

54、that will help defend margins,or is commoditised and therefore has margins prone to low-cost competition ease of enacting the carve-out(as well as the re-integration for corporate buyers)scale of potential effi ciency improvement opportunities based on:size(turnover and cost base)geographical footpr

55、int potential synergies with a buyers existing business.Unprofi table,traditional technology-based businesses facing a shrinking market and requiring extensive eff ort around carve-out and synergy capture will attract less attention and,therefore,a lower price.When an attractive price cannot be nego

56、tiated,disposal at a low(or even negative)price could still be in the interests of the seller if the disposal eliminates the need for signifi cant R&D expenditure related to older technologies,mitigates the need for a costly and bandwidth-consuming restructuring programme(including the negative PR i

57、mpact of redundancy programmes)and/or avoids future operating losses as the market contracts.Under such conditions,giving away the non-core asset(even with a dowry)can be a good deal for the seller over the medium to long term.Linked to this is an increasing trend tow ards executing non-core asset d

58、isposals by joint venture(JV)formation or separate listing/ring-fencing.While this does not deal fully(or at all)with the vendors exposure to the current and future performance of the asset,it does have benefi ts.The upfront carve-out required to get the business on a stand-alone basis makes future

59、disposal easier and enables the remaining business to focus on core strategy execution.If structured correctly,it can also isolate fi nancial liabilities.FULL BUSINESS DISPOSALMany of the benefi ts,challenges and features associated with the carve-out and disposal of individual business units/divisi

60、ons equally apply to the disposal of a whole business.However,there are considerations specifi c to whole business consolidation.Full disposals are commonly associated with horizontal consolidation,w hich has been a feature of M&A in the sector in recent years.Examples are OEMs operating in the same

61、 customer segments,suppliers focusing on the delivery of similar parts/modules or dealer networks serving the same geographies.Full business disposalWhole business consolidation(horizontal or vertical)to create scale and enable transformational margin improvement.MAXIMISEVALUERECOVERYINTENSITY OF TR

62、ANSFORMATION:REVOLUTIONARYFOCUS OF TRANSFORMATION:STRATEGIC,COLLABORATIVE9Maximising value from non-core assetsThe resulting larger businesses will be better placed to maximise value capture from non-core assets by combining income streams and more efficiently utilising their asset and cost bases in

63、 the face of lower market volumes.However,it is also anticipated that the sector could see a new consolidation dynamic:vertical consolidation.This would be a reversal of well-developed procurement strategies at OEMs and large tier-1 suppliers.For more than a decade,the trend has been for OEMs to out

64、source complex and invaluable modules(from instrument panels and powertrain modules to HVAC systems and door modules)to tier-1 suppliers.The OEM manufacturing process has increasingly become an assembly operation,with the manufacture of modules and parts handled by suppliers.Accordingly,tier-1 suppl

65、iers have outsourced detailed parts manufacturing to sub-tier suppliers located across a complex,integrated global supply chain.Two emerging pressures have led to this changing dynamic:First,COVID-19 was a shock to the hyper-efficient just in time supply chains refined to be as close to real time as

66、 possible.As the pandemic impacted automotive factories,production halted as parts could not be manufactured or delivered in sufficient time or quantity.This has brought in to question the resiliency of automotive supply chains and whether the pursuit of ever-increasing efficiency has gone too far.O

67、EMs and tier-1 suppliers are considering bringing production of critical parts/components back in-house to secure supply and avoid significant disruption in the future.Vertical consolidation around specific geographies is also a solution being considered to enable increased resilience.This means cre

68、ating larger supply bases with enhanced capabilities through mergers and that reduce logistics risks by being closer to the OEM factory gates.Second,vertical consolidation is being viewed as a tool to help stabilise profit levels in the face of lower volumes.Companies are trying to make more income

69、from each vehicle to make up for the gap left by lower volumes.The focus has been on complementing product sales with service sales,particularly around digitally enabled mobility solutions.However,capturing additional margin from each vehicle by expanding the level of value-add content owned on each

70、 one,whether at the OEM or supplier level,is a feature of vertical consolidation being explored by industry executives.The current market environment presents a unique opportunity to change the direction of a business,and sell-side M&A can be an effective tool for companies looking to reinvent thems

71、elves.However,creating maximum value through divestiture can be challenging.During the industry consolidation expected to emerge whether by acquisition of non-core divisions,or consolidation of whole businesses horizontally or vertically it will likely be a buyers market in the near future.The cost

72、of executing a value-creation strategy through buying,combining and rationalising automotive companies is currently low due to the disruption impacting the market,which is depressing deal prices and creating opportunities around stressed and distressed assets.Simultaneously,the potential for profita

73、bility improvement is high,due to these same issues.This means that the potential for creating value is there for buyers up for a challenge.Private equity investors(PEIs)are well-placed to capitalise on this opportunity.According to recent research,the top 400+PEIs active in the automotive industry

74、are estimated to have more than US$1.2 trillion of unallocated“dry powder”as of September 2020.110Value recovery in the automotive industryHAVING CONSIDERED WHAT parts of the business require transformation and which of the four value recovery responses is best suited to delivering maximum value fro

75、m that transformation,management teams must quickly execute.By nature,a restructuring programme or disposal project is complex and typically outside the day-to-day core skill set of the organisation.As a result,such projects carry significant risks.A poorly planned project can lead to milestones bei

76、ng missed,cost overruns and value leakage.Implementing cost optimisationCost optimisation should be targeted at maximising efficiency and effectiveness across the value chain and driving flexibility.Three strategies should be put into action to derive the most value:1.Be bold.Translate strategic goa

77、ls into a bold yet realistic transformation programme with executive buy-in.It requires courage to pull the right structural levers and look declining performance directly in the eye!2.Focus on value.Be explicit about how you intend to create value and focus on driving execution.There are unlikely t

78、o be shortcuts in this process.3.Reinforce agility and flexibility.Implement an agile approach that delivers quick wins through an iterative process.The best programmes have clear goals and priorities that increase resilience to the existing challenges a company faces and act as an enabler for strat

79、egic priorities.It is important to lay a solid foundation for any cost optimisation exercise by determining your addressable baseline and assessing the potential impact across all cost levers available to your business.DETERMINE YOUR ADDRESSABLE BASELINEThe first step is to assess financial and orga

80、nisational baselines to establish a starting point of your cost optimisation.This baseline typically consists of four costs:1.Indirect spend Costs related to the purchase of goods and services that allow the organisation to operate but are not linked to the manufacturing of its goods or delivery of

81、its services.2.Extended workforce Costs related to off-balance-sheet workforce including contingent workers and external providers.3.Labour Direct costs linked to the compensation of on-balance-sheet employees(permanent and fixed term).4.Materials Direct costs linked to the purchase of raw materials

82、/products as part of the manufacturing process or delivery of services.EXPLORE THE DIFFERENT COST LEVERSHaving determined your addressable baseline,your organisation can consider cost improvement initiatives by scanning the baseline through six different cost functions.The purpose is to develop tact

83、ical and strategic transformative improvement initiatives,as shown in figure 5.Part 2:Implementing your response11Maximising value from non-core assetsDeloitte analysis,2020.Deloitte Insights| 5Tactical and strategic transformative improvement initiativesFunction/areaTransformative improvement initi

84、atives Assess cost structure across geographies,business units and channels.Review key roles and responsibilities particularly between centre and business units.01 Assess controls over third-party spend,including delegated authority and approvals levels.05 Perform benchmarking of portfolio companies

85、 in similar sectors (including operational,cost and working capital KPIs),and identify improvement levers.Assess footprint optimisation potential.02 Provide an efficient and scalable platform,and optimise IT applications and infrastructure.Assess IT projects and test completeness and robustness of b

86、usiness cases including benefits.03 Assess repetition in work and additional organisational overhead due to fragmented processes with various teams seemingly undertaking similar activities.04ORGANISATION STRUCTURETHIRD-PARTYSPENDOPERATIONSIT/TECHNOLOGYFINANCE AND HRCAPITAL PROJECTS Review business c

87、ases for ongoing or planned capital projects,including assessing whether there is a clear line of sight on costs to deliver and proposed benefits are properly identified and realistic.06MAKE YOUR PERFORMANCE IMPROVEMENT ASUCCESSWhen implementing a cost optimisation project through one or a combinati

88、on of tactical and strategic initiatives,there are six success factors that will help you maximise success:1.Stakeholder ownership:Accountability is key,so a designated owner must be assigned to each initiative.2.Actionable initiatives:Identify actionable initiatives no theory talks.C onsider the ag

89、ility of your organisation,and focus on bite-sized initiatives.3.Factbased,datadriven approach:Defi ne a clear current-state cost base detailed enough to withstand challenges.4.Cost programme command centre:Establish a dedicated cost-reduction team to monitor costs and benefi t realisation and to in

90、itiate corrective measures should the need arise.5.Communication:Realigning the cost base can be hard on employees and potentially amplifi ed given the increased prevalence of remote working.Make use of virtual forums for employees to share concerns and for leaders to provide transparency.6.Resilien

91、cy:A cost optimisation project should not be a stand-alone,one-off exercise.The project should build resilience into your business so that you are prepared for the next crisis/challenge.This means making your cost baseline transparent,fl exible and scalable and putting measures in place to monitor a

92、nd report on cost performance.12Value recovery in the automotive industryImplementing exit/closureImplementing an exit without a well-thought-out and structured plan can negatively affect financial performance and reputation.For some businesses and management teams,the exit is a defining moment,one

93、that can release tangible benefits to the bottom line.However,it must be presented as a transition to the future to avoid a sense of failure in the retained operations.A well-managed closure should follow three steps:1.Options analysis An organisation must consider if closure is the correct approach

94、 to deliver value to stakeholders.Would a performance improvement programme or non-core asset disposal deliver more value?2.Implementation planning Detailed planning of the exit process is key to meeting objectives and avoiding common pitfalls that erode the potential benefits to the remaining busin

95、ess.3.Implementation It is imperative that organisations execute their plan and achieve their objectives using robust project management disciplines to avoid slippage and value leakage from the process.Implementation planning and implementation are the most important parts of a managed wind-down or

96、closure.To conduct an options analysis,an organisation should consider not just whether to exit a business but how they exit,while mitigating risk and maximising the return to the core business.A comprehensive options analysis answers if there is a:requirement for a clean break from non-core busines

97、s need to stem losses in an underperforming business unit to avoid a material adverse impact on the wider business plan to minimise the impact on remaining core business operations freeing up management time and available capital to be invested in growth areas plan in place to protect the core busin

98、ess reputation and stakeholder relationship viable business for the future or whether closure is the best option.In many cases,a managed wind-down and closure will be the option that will deliver the most value to shareholders and have the most significant and positive impact on the business.This ho

99、lds true even if a dowry payment is needed to avoid future investment and distractions from core operations made on managements time.Implementing noncore asset/full disposalBest-practice behaviour for disposing of an automotive asset is broadly the same for non-core assets(response 3)and full dispos

100、als(response 4).Substantial differences in best practices commonly emerge after the sale in post-deal integration and value optimisation programmes.However,in getting the deal done there are more similarities than differences.PREPARATION TO ESTABLISH,ENHANCE AND DEFEND VALUEThe key to executing a di

101、sposal is preparation.Preparation of the underpinning value story behind the sale and preparation of the business to enhance and defend that value(figure 6).13Maximising value from non-core assetsExecuting a disposal is fraught with risk,especially in the current market environment,which can lead to

102、 valuation expectation gaps.While agreements can be completed close to signing,sellers would do well to prepare,align them internally and build a supporting narrative or investment hypothesis well in advance.According to cross-industry research,changes in the market environment and corporate strateg

103、y aside,the largest hurdles to divestitures anticipated this year include changes in operating performance(36%),inability to negotiate acceptable deal terms(35%)and inability to obtain acceptable value for assets(33%).2 In the automotive sector,there are additional factors,such as uncertainty around

104、 market volumes,the transition to EVs and a rapidly changing regulatory environment,that all make the creation of an investment hypothesis that stands up to scrutiny increasingly diffi cult,but completely necessary.Sellers must now expend signifi cantly more eff ort helping potential buyers build th

105、e hypothesis,making it easy for them to see the value that can be created and to have confi dence that uncertainty can be mitigated(or even leveraged).Deloitte analysis,2020.Deloitte Insights| 6Establishing,enhancing and defending value through comprehensive preparationPreparing the value story and

106、preparing the asset for saleESTABLISHVALUE01040302Through transaction planning buyer identification,clear perimeter definition,go-to-market strategy.Compelling value story clarity on where the business sits in the changing market in terms of customer relationships,product technology,trend exposure.P

107、erformance improvement potential clear path to additional value from operational improvements(profit and cash conversion).Detailed and robust financials historical underlying track record and projections that support the value story.ENHANCEVALUE050706Pre-deal business optimisation implementation of

108、improvement plans to full extent possible before going to market(working capital,balance sheet,operations).Pre-deal synergy planning clear articulation of potential synergies,with supporting analysis/planning,to highlight additional value opportunities.Separation planning development of a detailed s

109、eparation plan to clarify the actions required and reduce uncertainty for buyers,particularly around the manufacturing footprint,IT infrastructure and back-office TSAs required.DEFENDVALUE081009Avoid value leakage early identification of risks/liabilities,to either layout detail for buyers and/or mi

110、tigate exposure:a no surprises approach.Tax optimisation tax structuring work to minimise tax impact of the divestment(for the seller and buyer).Comprehensive stakeholder management plan thorough and coordinated communication with key stakeholders in the business.14Value recovery in the automotive i

111、ndustryPREPARATION OF THE VALUE STORYA clear and consistent value story must be communicated to buyers:What is the position of the business in the market in terms of strengths and weaknesses?Which market trends is the business exposed to?How well aligned are operations to the current and future auto

112、motive market?What technology underpins its products?Where is the value that can be created for a new owner?What is required to access it in terms of effort and investment?If the value story resonates with buyers,then a carefully coordinated go-to-market strategy will pique buyer interest and drive

113、competitive tension.As it is likely to be a buyers market for the foreseeable future,getting the value story right and keeping it consistent is crucial to help buyers determine that your asset has value.In particular,having that view as to how value can be created will enable the right buyer(s)to be

114、 identified.Vendors therefore need to identify what would make their assets attractive even if no longer additive to themselves.What makes an asset attractive might not be immediately obvious,especially if it is linked to location,intellectual property or some other intangible asset.The right buyer

115、is someone who understands the asset and its potential,while also being able to justify investing the optimum value sought by the seller.Businesses embarking on the disposal of non-core assets without a vision that sells will find it harder to attract buyers and convince them to meet price expectati

116、ons.A clear value story is also important in ensuring that stakeholders are aligned to the approach.The expectations and concerns of customers,employees,labour organisations,local and national government,suppliers and other groups will need to be managed.Having a clear rationale behind the transacti

117、on,shared with different stakeholders at the appropriate times,will help build acceptance and/or support and avoid damaging relationships or delays that will ultimately impact value.Once a clear and cohesive value story has been established,the focus needs to shift to the sale.PREPARATION OF THE BUS

118、INESS FOR SALEPreparing a business or non-core asset for sale involves a combination of enhancing the potential value and/or defending against value leakage throughout the M&A process.This is delivered primarily through comprehensive sell-side materials.Crucial to a successful deal is to carefully c

119、ompile and manage the information flow to support buyer targeting,positioning of the business,buy-side due diligence and deal structuring.Skilled sellers start divestiture planning early.According to recent research,75 per cent start planning between 4 and 12 months in advance of the sale,with most

120、opting for the high end of that range.Only 8 per cent start separation planning within 3 months.3This is important because the more the information package is prepared,the easier it is for buyers to get and stay interested.And the easier a seller makes it for a buyer to see the potential value in a

121、business,the better chance the seller has of a successful disposal.The Deloitte 2020 Global Divestiture Survey identifies five priorities for sellers in preparing a deal for market:developing carve-out financial statements(60%of respondents)performing a detailed valuation analysis(57%)analysing pote

122、ntial deal structures(50%)considering tax and legal structure(41%)establishing an incentive plan for target management(39%).15Maximising value from non-core assetsAthorough process of preparing business and sellside materials also enables risks and issues to be identified early and avoided or mitiga

123、ted.Thisincludes defending against value leakage in areas such as offbalancesheet/contingent liabilities,outstanding liabilities,pension liabilities andtax.Current uncertainty and risk in the sector have the potential to put investors off,so any additional uncertainty arising from poor materials wil

124、l be difficult to overcome.A thorough process of preparing business and sell-side materials also enables risks and issues to be identified early and avoided or mitigated.This includes defending against value leakage in areas such as off-balance-sheet/contingent liabilities,outstanding liabilities,pe

125、nsion liabilities and tax.Materials can take different forms,but typically fall into three categories,along with a supporting populated virtual data room:Commercial/financial:Teaser,Information Memorandum,Vendor Assist or Vendor Due Diligence report(s)Legal:Vendor Due Diligence or disclosure package

126、,draft sale and purchase agreement Operational:Day one separation plan(including IT),draft Transitional Service Agreements(TSAs),draft synergy plans.There are two overarching features essential for the package of sell-side materials:1.Ensuring alignment:Every document needs to be aligned to the over

127、arching story articulated to buyers around the value of the business.Any difficult truths should be dealt with at this stage,as issues cause more damage to value if they surface late in the process.The credibility of the materials is paramount.If this slips on one document,it can damage the whole pa

128、ckage and destabilise the overall process.2.Dealing with complexities:Sell-side materials need to deal with the complexities of the business and/or the execution of the transaction.All deals are unique,but the following areas are where complexities typically arise:Definition of the transaction perim

129、eter,particularly on carveout deals.Detailing exactly what is included in the target business is critical,especially when the situation is more complex than the disposal of ring-fenced legal entities.This is even more important where the non-core asset being sold is a group of products rather than a

130、n existing division or parts(but not all)of several different legal entities.Once the process has started,any confusion risks damaging the credibility of the process.Availability of financial information aligned to the transaction perimeter.Often the business/division being sold has a historical rec

131、ord of performance.In these circumstances,a financial forecast will typically be available(at least for the current year).However,in more complex non-core asset carve-outs,the business may form a group of products/operations that have never had financial results separately prepared.This is increasin

132、gly common when the disposal perimeters are around product technology,rather than traditional reporting lines such as geography or end market.In this situation,a track record for the target plus a corresponding set of forecast financials will need to be created.16Value recovery in the automotive ind

133、ustry Level of operational entanglement the target business has with the parent group.The extent to which a unit relies on the back-office functions,management team,manufacturing facilities and sales/supplies of the parent company are drivers of carve-out disposals.Potential buyers need to understan

134、d these entanglements both practically and financially.In particular,the quantum and details/terms of intra-group trading and costs recharges will be scrutinised.A detailed separation plan is needed for disentanglement to allow confidence that practical steps can be achieved in the required time fra

135、me and that costs are understood,as well as the impact on the underlying profitability of the target.All these clarity requirements can be addressed in pre-prepared sell-side documents.As with the financial package,this package can show buyers a path to value.A detailed plan can help turn a complex

136、and expensive disentanglement into an achievable project(with quantified,albeit estimated,costs).IT infrastructure.IT tends to be one of the largest costs of separating a business and/or integrating it into a new one.Understanding the IT infrastructure within the target business and how it is entang

137、led with the parent group is key to estimating what time,effort and/or expenditure it will take to complete an IT migration.Early understanding of what this will entail means that there are no surprises later on.Complexity in disposals can concern a buyer and is therefore a risk to value.Time spent

138、preparing sell-side materials before launching a process directly affects the smoothness of a disposal process and ultimately the value obtained.Understanding and documenting these areas,especially if they are complex,gives a seller a bigger chance of attracting potential buyers and keeping them int

139、erested.17Maximising value from non-core assetsCompanies need to make bold decisions about non-core parts of the business focused on the traditional automotive business model.Whilethese parts may not have been in the spotlight recently as the industry is focused on the rapid pace of technology and m

140、arket changes now is the time to pay them attention and maximise the value delivered by them.Facedwith this noncore challenge,there are critical questions that you as abusiness leader need to ask yourself:Have you undertaken an open and honest assessment of all parts of your business,and where,how a

141、nd why they fit in to your future strategy?Which parts should dominate capital allocation at the expense of other non-core areas?Given the scale and pace of change in the market,is your business flexible enough to deliver on your future strategy?For business parts identified as noncore whether they

142、be product lines,business units or divisions have you developed astrategy for maximising value fromthem?Can these assets have cash flows maximised to benefit investment in future capabilities,or should they be sold to free up capital?Can these assets benefit from pre-sale performance improvement pro

143、grammes to maximise value if a sale option is considered?What no regrets actions can be taken to release value trapped in working capital?Have you considered a broad cost optimisation plan,rather than a simple cost-out programme?Have you addressed your cost base in a flexible and dynamic way so you

144、can respond to the post-COVID-19 recovery?Have you undertaken detailed scenario planning,flexing assumptions for a range of potential market recovery profiles?If disposal is an option for noncore assets,have you considered:What planning and preparation is required to maximise the likelihood and valu

145、e of a transaction?What would the baseline cost of closure be as an alternative?How integrated is the non-core asset with the wider business can it be sold as a stand-alone business or is a managed wind-down a potential scenario?Now is the time for action on non-core assets18Value recovery in the au

146、tomotive industryEndnotes19Maximising value from non-core assets1.John Roop,Steve Boyette and Trent LaFrano,“What can we learn from the last recession?Preparing for a new wave of M&A in the automotive sector”,Deloitte Insights,October 20,2020.2.Anna Y.Lea Doyle and Iain Macmillan,“2020 Global Divest

147、iture Survey:Perspectives on sell-side activity and recent divestitures”,Deloitte,2020.3.Ibid.AcknowledgementsThe authors would like to thank Peter Gallimore and Larry Hitchcock for their contributions to this article.Dr Bryn Walton|bcwaltondeloitte.co.ukBryn is the insight lead for Deloittes UK Aut

148、omotive practice.He has a wealth of experience working with some of the worlds leading consumer brands designing,running and implementing consumer research in areas including innovation and technology.He is the author of several recent thought leadership reports on electric mobility and the future o

149、f the automotive industry.Richard Hopkins-Burton|rhopkinsburtondeloitte.co.ukRichard is cohead of Automotive Financial Advisory and head of Automotive M&A Transaction Services in the UK.He sits on the UK Automotive leadership team and the global Automotive Financial Advisory team.Richard has special

150、ised in M&A for over ten years,advising corporate and private equity clients on buy-side and sell-side assignments.In particular,he has extensive experience of leading complex,cross-border transactions and carve-outs.Sandy Duncan|saduncandeloitte.co.ukSandy is a partner in the London Value Creation

151、Services team and is cohead of Automotive for UK Financial Advisory.He advises and supports senior management teams through planning and implementation of missioncritical,operational and financial restructuring processes.This experience includes work around managing key stakeholders,commercial diagn

152、ostics,shortterm cash flow forecasting,business planning,cost reduction,carve-outs and managed exits.Rob McCrosson|rmccrossondeloitte.co.ukRob is part of the UK Financial Advisory practice,specialising in assisting clients and their stakeholders to manage volatility and distress.This takes the form

153、of corporate advisory engagements and performance improvement for corporates,as well as advising lenders and other key stakeholders maximising value from restructuring situations.He is a key member of the UK firms Restructuring Services Automotive team.About the authors20Value recovery in the automo

154、tive industryContact usOur insights can help you take advantage of change.If youre looking for fresh ideas to address your challenges,we should talk.Dr Harald ProffPartner,Global Automotive Lead+49 211 87723184|hproffdeloitte.deIain MacmillanManaging Partner,Global M&A Services Leader+44 20 7007 297

155、5|imacmillandeloitte.co.ukSandeep Gill Partner,Global Financial Advisory Lead Consumer+44 20 7303 3325|sandeepsgilldeloitte.co.ukPeter GallimorePartner,UK Automotive sector lead+44 12 1695 5900|pgallimoredeloitte.co.uk21A best practice approach to dealing with non-core assetsSign up for Deloitte Ins

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