BorgWarner Makes A Bold M&A Move

I didn’t see this one coming.

Yes, I thought, and wrote, that the auto supplier industry was likely to see consolidation, particularly in areas like internal combustion engine (or ICE) components, where pressures from eventual hybrid/electric adoption and R&D were going to reward scale. I likewise thought there’d eventually be consolidation in hybrid/EV-related components, as companies who waited too long to move (or made the wrong moves) tried to correct.

Still, while it makes a great deal of sense to me, I didn’t expect BorgWarner (BWA) to pony up and acquire Delphi (DLPH). Part of the reason was that I expected a negative reaction from investors, and that’s exactly what BorgWarner shares saw after the deal, but also because BorgWarner management had been pretty adamant that they had what they needed in terms of hybrid/EV positioning.

I like this deal. I like the synergy in combustion powertrain, and I like the synergy in hybrid/electric, where Delphi’s power electronics business (inverters in particular) meaningfully improves BorgWarner’s leverage to BEVs. The market clearly doesn’t like the deal, and while there will be plenty of execution challenges and risks, I’d buy BorgWarner on this weakness.

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BorgWarner Makes A Bold M&A Move