Global report: Private equity investors consider new products and markets to be more important for automotive suppliers than for other industries

• New business areas and products are on the agenda for 79% of investors
• Technology and IT investments are considered by 88% to be a key lever for value enhancement
• Almost half very frequently rely on efficiency gains through supply chain and process optimization to free up capital

“Many entrepreneurs and executives in the German supplier industry have come to the conclusion that they cannot continue as before,” says Ralf Winzer, Managing Director and Partner at FTI-Andersch, the consulting unit of FTI Consulting specializing in restructuring, business transformation, and transactions. “Demand is falling in Europe, while global competition is increasing. New companies, especially from China, are entering the market. That is why a significant number of suppliers are now trying to reinvent themselves or at least diversify.”

“We see opportunities above all in areas where there are high technical requirements,” says Ralf Winzer. “For example, in aviation, renewable energies, defense technology, or industrial drive systems. In these industries, the requirements for precision, quality, and documentation are just as high as in the automotive industry. This lowers the barrier to entry – but requires a considerable amount of lead time.”

Gradual diversification as a model for success

"Nevertheless, it takes more than technical know-how. Approvals, new customer relationships, smaller batch sizes, and different product cycles present many companies with cultural and operational challenges. Those who proceed step by step, start with niche products, and focus on strategic partnerships can still successfully tap into new markets – without immediately jeopardizing their core business," says Ralf Winzer. “One thing is clear: this is not a sure-fire success. But it would be negligent not to examine where and how automotive suppliers can broaden their base. Here, too, there is no master plan. But there are individual paths that can work.”

And in addition to time, capital is also needed. It is therefore understandable that 42% of respondents work very frequently on optimizing their supply chain and processes (operations), 41% make their working capital more efficient, and 39% stated that they do so “very frequently” when it comes to adjusting their cost structures.

Tough cuts for new scope

“The combination of overcapacity, a shrinking combustion engine business, and high investment requirements is forcing many suppliers to make fundamental changes. Anything that is no longer sustainable or economical is being eliminated – whether through carve-outs, sales, or the shutdown of entire product lines or plants,” says Ralf Winzer.

“Many medium-sized companies also have to reposition themselves, often under difficult conditions. However, those who remain focused and secure their operational basis at an early stage can create new opportunities: for targeted investments, new customers, or entry into other markets. One thing is clear: the industry will consolidate – but companies that analyze their situation openly and act decisively have a good chance of redefining their position.”

Technology and AI as the key to future viability

And companies need sufficient capital for another area that respondents consider to be the most important lever for value creation: modern technology and IT infrastructure. 47 percent are already actively investing in this area very frequently, with a total of 88 percent stating this.

These investments are not only of paramount importance for opening up new products and markets or serving the existing customer base. PE decision-makers also stated that the maturity of AI and automation in operational processes is the most important criterion for a successful exit – ahead of a scalable business model, which ranks second.

“Many suppliers underestimate how much investors today value digital connectivity and automation,” says Ralf Winzer. “Those who do not invest in AI-supported processes and modern IT infrastructure now risk being neither competitive nor attractive to buyers in a few years' time. Digitalization is no longer an optional add-on – it has become a prerequisite for growth, transformation, and sustainable value enhancement.”

About the study:

FTI Consulting surveyed more than 500 decision-makers from private equity firms, including investment professionals and operating partners. The aim was to gain a better understanding of the levers used to increase value in portfolio companies. The survey was global in scope and included participants from the US, Latin America, Europe, the Middle East, and the Asia-Pacific region.

The full study can be downloaded here.