Auto deals struck despite credit woes

By Megan Davies

DETROIT (Reuters) - Auto sector deals are still being struck despite the credit market turmoil, as the U.S. industry pushes to become more international, suppliers consolidate and large companies spin off noncore assets, investment bankers said on Tuesday.

But the busiest sector is in smaller deals, which haven't been so hit by the tightening credit markets.

"We've never been busier for looking at financing deals in the automotive industry," Justin Mirro, head of the Automotive and Transportation Group at Jefferies & Co, said at the Reuters Autos Summit in Detroit. "There are a tremendous number of deals in the $100 million to $200 million (range) that are bread and butter for private equity firms, and they need help financing those."

Auto mergers and acquisitions have has been relatively insulated from the tightening credit markets, said Mike Macakanja, a director at Lazard, as "lending practices never got as aggressive in the auto sector."

"Automotive M&A is relatively healthy," Macakanja added. The deals are being driven by the need for capacity to be taken out of the sector, for suppliers to become more global and for a general restructuring and reorganization of the supply base, he said.

The past few years had seen major deals struck, such as the takeover of Chrysler LLC by buyout firm by Cerberus Capital Management LP in a $7.4 billion deal; the $1.2-billion sale of Metaldyne to Japan's Asahi Tec Corp (5606.T: Quote, Profile, Research, Stock Buzz) and a number of restructurings as companies like Delphi Corp (DPHIQ.PK: Quote, Profile, Research, Stock Buzz) work on emerging from bankruptcy.

But the subprime turmoil in the summer effectively closed the debt markets to large buyout deals and sent a shudder through the M&A market.

Mirro, however, said the Detroit autos supplier sector, with a lot of assets, long-term visibility and long-term contracts, is a "perfect industry for debt, and there is no shortage of debt out there for the right deals."

"We will see a lot of M&A transactions and we'll see them properly financed," Mirro added. "It got a little aggressive out there about a year ago, but it has come back to a market that we saw about 2, 2.5 years ago that was reasonable."

Mirro added that there was also a pool of auto supplier assets buried in some of the bigger companies, which could drive M&A.

Automakers in the U.S. will continue to look overseas for consolidation and partnership deals, as the industry becomes more international.

"We did 22 transactions this year in the automotive area, not including the restructuring work we are doing," said Mirro. "Twenty of those transactions involved an international component. Only two deals were purely domestic deals."

He added that included destinations from Singapore to Shanghai, Mumbai, Kuwait, Finland, Sweden and the UK.

(Additional reporting by David Bailey, editing by Gerald E. McCormick)