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Increasing demand for automotive related Research & Development (RD) activities, Information Technology (IT) and Connected Car application areas in particular, have driven up the Merger & Acquisition (M&A) deals in the global automotive technology sector.
The automotive technology M&A market has grown significantly over the past three years, with year-on-year growth in both transaction volume and value.
According to the latest report by the M&A advisory firm Hampleton Partners, the number of transactions from March 2014 to March 2015 was up 15 percent on the previous year.
The volume and value of the M&A market in automotive technology increased significantly throughout the three year period of analysis in this report.
2014 saw many automotive-technology targets achieve high valuations for their companies: In November, Solera Holdings acquired UK-based CAP Automotive for $ 464 million. In May, Bowmark Capital acquired UK-based Autodata for $ 241 million.
In addition to Solera’s recent purchase of CAP Automotive, the self-styled “industrial PE” purchased 11 other targets during the past three years. As the top acquirer in the auto-tech sector, Solera has not being straying far from its core collision, valuation, and parts recycling roots. Solera’s acquisition strategy gives the impression that the company is aiming to be involved in the entire vehicle ownership lifecycle.
The second most active buyer was DealerTrack, which is continuing its buy and build strategy with six transactions completed during the past three years focused on dealer-centric assets as they continue an impressive track record of buying (and building) into the dealer space.
The majority of acquirers of auto-tech targets were based in North America, with 37 percent based in Europe and 7 percent in the rest of the world.
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Of the European transactions, 54 percent of targets were acquired regionally. The two European countries with the most M&A activity in the automotive-tech space were the United Kingdom and Germany, with 30 and 29 targets respectively.
Hampleton Partners has divided M&A activity in the auto-tech sector into four sub-sectors. The most active was Enterprise Applications with 32 percent of the deals, followed by Internet Commerce and Content at 25 percent, Embedded Software Devices & Hardware at 23 percent, and Fleet Management with 20 percent.
Enterprise Solutions & Software covers CRM Automation, Dealership Inventory Management, Dealership Management, HR, Inspection Software, Insurance Claims Management, Payment & Invoice Processing, Repair Estimation & Management, Tire POS & ERP Software.
Internet Commerce and Content comprises Advertising, Auction Websites, Classifieds, Document Creation, Marketplaces, Quotation Websites, Reference Content, Rental Websites, Tire Retailers. E
Embedded Software Devices & Hardware covers Equipment Sensors, Interface Software, Location Tracking, Parking Surveillance, Sensor Controllers & Systems, Vehicle Control Systems.
Fleet Management – Fleet Management Systems, Fuel Supply Management, GPS Fleet Tracking, Logistics Management.
The total disclosed value of Enterprise Applications was $ 3.0 billion with a median per transaction of $ 47 million.
One of the most notable transactions involved US-based Cox Automotive when it acquired dealership CRM provider Xtime in November 2014, paying $ 325 million. A number of transactions involving dealership-management CRM SaaS targets were completed in this sub-sector. In more than 90 percent of transactions, the buyer and seller were North American.
It will be interesting to see how this unprecedented level of consolidation will impact the traditional dealer management systems space. DMS is largely controlled by UCS-owned Reynolds & Reynolds and CDK Automotive (the $ 2 billion DMS giant formerly known as ADP Automotive), which very recently spun itself out of the larger and more HR/payroll focussed ADP Global.
France-based Dassault was the most acquisitive of European firms. Dassault purchased three German simulation and visualisation targets, the largest of which was RealTime Technology AG. Munich-based Realtime sold 84 percent of its shares for just under $ 205 million.
Numerous transactions involving collision claims and mechanical repair providers took place during the past three years.
Hampleton Partners said it continue to see European assets in this aftersales-focused sector performing well, especially those that continue to invest in new technology as they become must-have targets for firms such as Solera. The aftersales sector has become quite a safe haven for investment, especially after the collapse of the auto industry in 2008-2010, because these assets have some anti-cyclical characteristics which makes them quite attractive when times get tough (as consumers decide to repair versus replace their vehicles).
The disclosed value of transactions in automotive internet content and commerce was $ 4.9 billion and the median was a high $ 70 million.
The two most notable transactions in this sub-sector were previously mentioned Solera Holding’s acquisition of CAP Automotive and Bowmark Capital’s acquisition of Autodata. Content management assets as well as transaction / payment processing were just a few of the key deals in this sub-sector.
Internet Brands (IB) was the top acquirer of automotive internet commerce and content targets. IB made seven acquisitions during the three year period, primarily in the new and used vehicle sales website sector. IB’s most recent acquisition was for High Gear Media, a six-year old automotive publisher. The automotive category is a highly competitive one in which IB is competing with a consortium of large media brands like Cox Enterprises, owner of AutoTrader and Kelly Blue Book, Hearst Magazines, owner of Road & Truck, and the consortium behind Cars.com.
Another active buyer was IHS, which made two acquisitions in this sub-sector. In the second largest transaction in the auto-tech industry, IHS purchased online automotive reference content provider, R.L. Polk & Co for $ 1.4 billione. Its second acquisition was for a German content provider, BDW Automotive GmbH for just $ 8 million. BDW will expand IHS’s capabilities in the automotive dealer and aftermarket data and systems market. IHS’s recent acquisitions show that targets at both the high and low end of this sector are attractive to prolific acquirers in the current market.
Embedded Software Devices & Hardware had the highest growth of all the sub-sectors from 2014 to 2015, with volume increasing by 244 percent. Several of the targets included in this group develop software for embedded ECUs. The growth in in-vehicle networking is largely driven by the increasing demand for automobile electronics and optical sensors. This has resulted in an increase by several orders of magnitude in the number of on-board ECUs. Advanced vehicles manufactured today will have more than 80 complex ECU’s controlling everything from lane departure optical sensors to hybrid power units and energy recovery systems.
The fast-pace growth of M&A activity during the past year within embedded software devices and hardware can be attributed to the rise of the ‘connected-car’. Providers are in the midst of strengthening their offerings to capitalise on consumer and enterprise demand.
The M&A advisor expects this sector to remain very robust as the race to release semi-autonomous vehicles (which will be around, in our view, for a long time before fully autonomous vehicles appear) is well underway. All OEMs are working on this, most using proprietary technology, so we expect new / start-up technology providers to be snapped-up quickly in this sector by either T1 providers (Conti, Bosch) or directly by OEMs.
The mobile network operators are also getting in on the action with Vodafone’s 74 percent majority acquisition of Italy-based Cobra Automotive for $ 145 million in June 2014. Cobra provides security and telematics solutions to the automotive and insurance industries and will allow the British telecom to augment its connected-car offerings.
The automotive sector is rapidly becoming a leading vertical for M2M with many manufacturers paying premiums for embedded software devices. In the US, Verizon acquired Hughes Telematics for $ 612 million. The deal gives Verizon a new source of growth as it faces saturation in the U.S. market for mobile phones and land lines. For more information on telematics, please see our 2H2014 M&A Market Spotlight on the Internet of Things.
This sub-sector represents 21 percent of the transaction volume in the auto-tech segment and had a disclosed transaction value of $ 3.8 billion with a median of $ 48 million. M&A transaction volume increased by 31 percent over the last year.
GPS tracking software and systems targets accounted for just under half of the transactions. One of the top European acquirers, TomTom, made two regional acquisitions in the GPS fleet management space, after staying out of the M&A market for three years. TomTom acquired Coordina, a provider of GPS tracking systems and services to the transportation and construction sectors. The acquisition is an attempt to strengthen TomTom’s fleet management offerings and enable its expansion into the Spanish market. Its more recent acquisition was for French fleet management software provider DAMS Tracking. TomTom views France as one of the largest addressable markets in Europe, with around 6 million commercial vehicles in use. (Acquirer press release, April 2014). As the number of TomTom units stuck to windscreens decline due to embedded SatNav systems, the Dutch company are looking to remain relevant as a back-end solution provider to OEMs.
Top Fleet Management acquirer, FleetCor, acquired two European targets throughout the past three years. Its most recent move was for UK-based Epyx, a fleet rental, repair & disposal marketplace for ca. 11x EV/EBITDA. The acquisition of Epyx is a slight departure from FleetCor’s core fleet fueling business, moving beyond fueling into fleet maintenance life cycle and costs management.
The automotive IT & Business Services sector is hot or now. The number and value of deals in this sector is continuing to grow despite the still-fragile nature of key markets around the world. Opinions will differ whether this rise is related to the stock market climb which has helped banks look more favourably on this once scorned sector, or the inverse relationship to oil prices (think oil price increases in 2008 which doomed the auto industry at the time) or something else, but one thing we can all agree with is that sooner or later, gravity will take hold. Timing is everything.
While a dramatic increase in on-board vehicle technology is partially driving this rise, we also see an interest in highly scalable, robust, mid-to-high growth assets with recurring revenue and long-term OE or T1 contracts. We also see a sharp increase in aftersales-focused assets due to their anti-cyclical traits.
