The race to deploy self-driving cars could bring new life to the mergers and acquisitions market.
Though political uncertainty in the U.S. and rising interest rates are expected to slow deal-making in other industries, the need for automakers, suppliers and tech companies to develop viable autonomous vehicle technology will maintain high levels of investment in acquisitions, according to a report by law firm Foley and Lardner.
“It’s possible the best days in this cycle are behind us, but there are still some legs to it,” said Steven Hilfinger, an attorney at Foley and Lardner and co-author of the report.
While the value of deals in the automotive industry decreased 34 percent from 2015 to 2016, the number of deals declined just 1.4 percent, according to the report. Hilfinger said automotive companies’ desire to capitalize on autonomous vehicles may prevent the number of deals from falling further in 2017.
77 billion reasons
Boston Consulting Group estimates that autonomous vehicles will create a $77 billion industry by 2035, with the companies that own that technology standing to make big profits. The quickest way to develop such technology, Hilfinger said, is to acquire it.
The deals in the automotive space involving self-driving cars fall into two categories: large tech companies spending billions to acquire established suppliers, and automakers and suppliers buying up early-stage mobility startups. The larger deals, like Samsung’s $8 billion acquisition of Harman in November and Intel’s $15.3 billion deal with Mobileye in March, are intended to give these nontraditional tech companies a major leg up in an autonomous future.
“These big companies are making big bets,” said Brendan Cahill, director of the automotive group at the Dykema law firm.
Automakers, on the other hand, have focused on the smaller startups cropping up in Silicon Valley as a way to acquire talent and develop more technology in-house, Cahill said. In March 2016, General Motors acquired San Francisco self-driving startup Cruise Automation for $1 billion, while Ford Motor Co. invested the same amount in Pittsburgh startup Argo AI in February.
“OEMs are buying barely more than startups in Silicon Valley and elsewhere because they want their own technology and people, they don’t want to be just purchasers of technology,” Cahill said.
Betting on technology
Given the potential safety and societal benefits of autonomous vehicles, investing in the space seems like a safe bet. However, Hilfinger said, putting their money on the wrong technology could prove disastrous for some companies.
“It’s not clear yet what ultimately will emerge as the most successful tech play,” he said. “People are trying to figure that out. Any kind of acquisition may not pay the dividends you expect.”
Yet, not betting at all may be even more harmful to a company’s future.
“It’s not a question of sitting it out,” Cahill said. “You have to do it to survive.”
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