EY: Autonomous Tech Driving Mergers and Partnerships

Connected car vector illustration. Concept of connecting to vehicles with various devices.


June 7, 2016: The need to stay ahead of the competition in developing autonomous and connected-car technology will lead automotive executives to partner and acquire more companies this year, according to a new biannual survey by consulting firm EY.


According to the firm’s most recent Automotive Capital Confidence Barometer, which surveys about 100 automotive executives, 52 percent said they expect to pursue acquisitions in the next 12 months. Roughly 57 percent of those acquisitions will be for deals worth more than $250 million.


And beyond full-on acquisitions, executives say alliances or partnerships are becoming an attractive option for getting cutting-edge features. One-third of respondents said simple alliances will become a greater focus.


“Technology is really the driver behind a lot of this activity,” said Mark Short, EY Global Automotive and Transportation TAS Leader. “Every company … recognizes the old way of doing business is not going to be how business will be conducted in the future. Everybody still wants to make sure they’re in the position to own the technology and drive the future success of their businesses.”


Already this year, automakers have made a number of deals with Silicon Valley software startups and alternative mobility companies.


General Motors Co. recently invested $500 million in Lyft and acquired software-maker Cruise Automation for a reported $1 billion; Ford Motor Co. invested $182 million in software company Pivotal; Toyota Motor Corp. invested an undisclosed amount in Uber; Volkswagen AG invested $300 million in Europe-based ride-hailing service Gett; and Fiat Chrysler Automobiles NV announced a nonexclusive partnership with tech giant Google to develop autonomous cars.


Short said most of those deals were partnerships, rather than mergers or acquisitions, because it lessens the risk of failure.


“The monetary risk is less, but should (the partnership) be successful, they’re sharing in the reward,” he said. “A good way to utilize capital more efficiently and spread the risk around.”


Nearly 60 percent of automakers plan to make deals worth more than $250 million, and Short said that’s a sign of a desire to have a significant impact on their operations.


“Doing $20 million or $30 million deals just doesn’t move the needle a whole lot,” he said.


While still above the average, the 52 percent of executives expecting mergers is down from this time last year, Short said. That’s because we’re coming off a record year of auto sales and profits for many automakers, and some experts say the industry growth is leveling off.


“We had another great year, but I do think there’s a sense of conservative starting to enter into the equation,” Short said.


Executives are also concerned about political instability in regions like the Middle East, Korean peninsula and South China Sea, as well as continuing economic issues in countries like Brazil.


Source: MEMA and the Detroit News



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