M&A, transportation technology


Merge right: Capturing transaction value as mobility forces converge

M&A considerations for automakers

Technology has transformed transportation. The automobile appears to be emerging as the ultimate consumer electronic device—and the business model that delivers that commodity to the customer is also transforming. Traditional fixed price agreements are giving way to structures such as corporate venture capital, cross-licensing, in-kind contributions, and revenue sharing models. What cues should M&A deal-makers in Detroit and Silicon Valley take from this shift? How might traditional transaction work like targeting, diligence, and integration evolve as a result?

Merge right: Capturing transaction value as mobility forces converge

Automotive and technology—Detroit and Silicon Valley—are converging. We are already witnessing the impact on societies around the world resulting from the rapid pace of innovation and disruption. Those very real examples of innovations that have already disrupted mobility also only represent a fraction of what has been imagined. Significant levels of disruptive innovation may be forthcoming, and the speed at which such innovation occurs may continue to increase. Companies will need to keep pace. Many will turn to M&A as a core business strategy. But will traditionally tested and proven M&A methodologies capture the full value—the complete opportunity—of a deal in a mobility ecosystem where transformational forces, industries, and cultures are converging?

Read the full supplement "Examining the evolving mobility ecosystem" here.

Change will likely result in new opportunities

The future of mobility will likely be enabled through a complex intersection of talents such as roboticists, signal processing engineers, data scientists and telecommunication specialists. These evolving technology and talent needs of competing companies in this sector have led to uncommon tie-ups between industries. There are already a host of examples spanning telecom, automotive, and emerging mobility businesses to point to as evidence. That trend is likely to continue.

The drivers of value are likely changing and hence, we are witnessing a shifting of M&A targets and partnerships to those companies with differentiated intellectual property and to those companies that manage customer relationships and data.

Additionally, as other nascent technologies mature and make their way into the automotive industry, it is expected that they too may become targets for partnerships, acquisitions, and corporate venture capital investments. As an example, gamification, virtual reality, and augmented reality have barely touched the surface of possibilities in automotive. And, many additional acquisitions may come in the area of “over-the-air” software updates and connected vehicles.

Shifting of power in the automotive ecosystem

Technologies and services built on data analytics and predictive analytics appear to be enabling a power shift in the automotive ecosystem. We are witnessing increasing power by those that own customer relationships, those that own pathways to data, those that own data for anonymized or non-anonymized use, and the system integrators who tie it all together. Acquisition targets may emerge where there is a scarcity of companies who provide key competencies and data inputs and those with defensible intellectual property that provides marked improvements in sensing, computing, and communicating.

Different models of engagement require a different approach to diligence

Most companies are employing a broader toolkit to access innovation today. Given shrinking product development lifecycles and scarcity of talent, a third path beyond organic growth or acquisition is being utilized with increasing frequency. This third path—we call it leveraged growth—builds relationships with companies well in advance of, or in replacement of, an M&A event.

Crafting a diligence approach to support a leveraged growth approach requires upfront planning and focus. Our experience shows the following leading practices can help:

  • Make a positive first impression
  • Focus on what matters
  • Know the lay of the land
  • Planning the exit is as important as closing the deal
  • Invest in building trust
  • Look beyond the dollar signs

The fully autonomous car is in the headlines. When will we see the tipping point that leads to mass consumer adoption? Regardless of when that innovation and others like it reach their full potential, the convergence of the automotive and technology industries is likely to accelerate. Automotive manufacturers that recognize and embrace technology and technology partners will likely have a competitive advantage. Joint ventures, partnerships, investments, and acquisitions can unlock and accelerate the development and innovation the industry needs, and the leaders who make those deals should think outside their traditional constraints from the outset.

technology in car

Read the full supplement here

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