The global credit crunch and the US economic downturn could restrict big-ticket financial buyer activity in the second half of this year, says a PricewaterhouseCoopers report. Though the total deal volume would be more or less the same as last year at over 500, in 2008, trade buyers would primarily drive the global automotive M&A activity, and financial buyers will continue to remain on the sidelines as in the first of this year, the report says.

PwC says there was a significant dip in the financial buyer activity, both in deal volume and disclosed value, during January to June. While, the financial buyer deal volume declined by 58% to 34 deals compared to 80 deals during the same period a year ago, there was a dip of 72% in the disclosed deal value at $5.9 billion.

However, in the first half of 2008 there was a slight dip from the average first half deal volumes between 2005 and 2007. A total of 289 deals and disclosed value of $13.2 billion were reported in the first half of 2008, compared to 333 deals and disclosed deal value of $19 billion in the first half of 2007. This means, that the overall disclosed deal value has come down by 30% from the first half of 2007 and is down 25% from the average of three first halves prior to 2008.

?It is difficult to compare the mergers & acquisitions activities in 2008 to the activity of 2006 and 2007 because they were booming years for automotive deals,? said Abdul Majeed, India automotive practice, PwC. ?With the decline of ?mega-deals?, there has been a large decline in the overall disclosed deal value. However, deal volume has seen only a moderate decline,? he said.

During the first half of 2008, disclosed deal value in the component supplier sector was $3.1 billion, down 55%, from $7 billion in the first half of 2007. In 2007, seven supplier M&A deals totalled more than $1 billion each, and two of these mega deals came in the first half of that year. In contrast, there were no supplier deals of over $1 billion in the first half of 2008. However, in the first half of 2008, component supplier deal volume declined only 19% from the first half of 2007, and remains relatively flat compared to the first half of 2005 and 2006.

On a regional basis, Asia and the US had similar levels of deal activity.

Asia recorded 73 transactions with a disclosed value of $2.2 billion and the US recorded 82 transactions with a disclosed deal value of $2 billion. If regional disclosed value trends persist for the rest of 2008, the US share of global disclosed deal value would be at its lowest level in the past seven years.

A strong level of outbound deal flow from Asia suggests that automotive companies in developing markets are poised to accelerate expansion into the global marketplace. ?Looking at the attractive value of some of the assets of global OEMs/ auto component suppliers, the Indian automotive companies will look for acquiring assets in the overseas market, both in Europe and North America to increase their global footprint,? he added.

The devaluation of dollar has not attracted increased foreign investment till date. This is likely the result of weakness in the US economy and its automotive market. This may prod would-be acquirers to reconsider or delay US M&A investments until they have more clarity about the magnitude of downside risk, it says.

?The automotive sector continues to restructure in response to the challenges of a changing global economy. Managing rising commodity costs and manufacturing footprint realignment will be keys to success in the global automotive industry in the next decade. M&A continues to play a major role and serves as a catalyst to help advance this transformation of the industry,? Abdul concluded.