General Holding

Information that you should share if inquired by the interviewee:

• Available capital is 3 times more than the amount needed to acquire OTOparts.
• Should the company be acquired, the holding can reallocate experienced managers from other automotive companies that the holding owns.
• In the automotive sector, the holding owns the majority of voting shares of two important car and bus manufacturers in France.

We should first determine whether it is feasible for our client to acquire the company. If it is not remotely feasible, we do not need to analyze further.

• Capital available to buy the firm
• Experience in the target company’s industry
• Competent management for the target company

Key Insights

The holding has enough capital and competences to acquire OTOparts.

In the automotive market, profit margins are about 2%. In the auto parts market, the profit margin has been 8% for 5 years in a row.

Information that you should share if inquired by the interviewee:

• OTOpart’s revenues and profitability have been declining slowly and steadily over the last 3 years (around 3% per year).
• Their market share in France was around 28% last year.
• The company does not conduct business internationally.
• Historically, the company has focused on selling parts to small and brand-independent workshops in small towns.

Now, the interviewee should ask relevant questions about the target company and about the holding.

• Company’s profitability
• Company’s market share
• Company’s key customers
• Can the holding use its other businesses to leverage OTOpart’s revenues and profitability
• Potential synergies

The interviewee should also pay attention to how companies are changing over time!
A company with a big market share is much less attractive if its market share has been falling drastically over the last few years.

Key Insights

• The company itself is NOT very attractive. However, that may be changed with a mid-to-long-term strategic change.
• OTOparts could purchase its parts from the holding’s automotive parts manufacturers. This will reduce OTOparts’ costs.
• Logistics and SG&A costs could be shared among the holding’s companies. This also reduces OTOparts’ costs.
• OTOparts could take advantage of the holding’s contact network to position itself more strategically in the auto parts market.

• TaVoiture, the biggest auto parts player in France, has consistently increased its market share over the years. Last year, its market share was 45%
• It has contracts with a few big car manufacturers to provide parts for their cars within the cars' warranties.
• TaVoiture is highly profitable.

Information that you should share if inquired by the interviewee:

• It is estimated that the auto parts market in France will generate €400 m each year.
• The national market is not growing. However, it is growing 10% per year in developing countries.
• There are NO substitute products that could threaten this industry.
• Auto part retail sellers are increasingly signing contracts with automotive manufacturers to take care of their customers’ vehicle warranties (maintenance at authorized workshops).
• Auto part sales to small, independent workshops have been declining considerably.
• There are significant barriers to entry in this industry such as brand recognition, distribution channels, contracts, and contacts.

These are the most relevant questions about auto parts industry and its future.

• Segmentation
• Market and segment size
• Rate of change in each sector
• Profitability of each segment
• Threatening market trends (substitutes, etc.)
• Main competitors within each segment
• Market fragmentation
• Market enty barriers

Key Insights

The interviewee should realize that:

• The market is €0.4 bn per year (equal to 40% of the holding’s own revenues). Thus, a 50% share in this new market would increase the holding’s revenues by 20%.
• The information about the international market is not very useful unless the holding plans to conduct international business with OTOparts.
• The market is highly profitable. It has a net profit margin of up to 8%.
• Increase of sales to automotive manufacturers could be very strategic for the holding as it could buy OTOpart as part of a vertical integration move.
• For example, OTOpart could be the car part supplier for the other automotive businesses the holding is involved in.
• OTOpart is threatened by the decrease of sales to small and independent workshops.
• The biggest player in the industry, TaVoiture, is consistently increasing its market share. This is probably because their main customers are big automotive manufacturers (an expanding customer segment).
• Since OTOpart had 28% market share last year, it must be the second biggest player. This is a favorable competitive position.
• High barriers to entry prevent new competitors from entering the market.

The auto parts market is quite attractive.

The interviewee should summarize his or her findings and give a solid recommendation.

„Should the holding buy OTOpart?“

The suggested recommendation is that it should do it for 3 main reasons:

• Although the auto parts market is stagnant locally, it is big (equal to 40% of today’s holding revenues) and very profitable.
• Although OTOpart is less attractive now, a change in its customer targeting strategy could turn it around and allow it to achieve excellent results similar to that of its main competitor TaVoiture
• Synergies could be exploited with the automotive companies within the holding. A vertical integration strategy could make OTOparts the auto parts dealer for these companies.