Venture capital funding to automotive startups totaled $8 billion in 2018, according to the latest Automotive Technology M&A Market Report from Hampleton Partners. In parallel, almost 100 merger and acquisition deals were inked, including Renault, Ford, and Volkswagen’s autotech acquisitions in the second half of 2018; however, total disclosed M&A transaction value reached $3.9 billion in the time period, the lowest in more than five years.
The report also shows the growing role of private equity (PE) in the autotech M&A market, accounting for almost one quarter of all transactions in 2018. The largest PE acquisition was Gores Group’s buyout of Verra Mobility for $1.3 billion.
Jo Goodson, Managing Director, Hampleton Partners, said, “Although we are currently seeing more venture capital investment than M&A transaction value in autotech, all players in the sector continue to push to be the market leader within the new world of electrification, connectivity, autonomy, and mobility. Startups with innovative ideas are pursuing funding, and global giants from all sectors, including financial, are continuing to invest, fund and acquire.”
One key trend in autotech, connected car technology, is widely hailed as the precursor for autonomous vehicles. It provides passengers with features such as internet, next-generation infotainment, and enhanced safety features. Deals in this sub-sector included Volkswagen’s purchase of WirelessCar for almost three times its revenue; Aptiv’s acquisition of Chinese advanced interconnect specialist KUM in a landmark $500 million deal; and Zurich Insurance’s acquisition of Bright Box in a move to bring the insurer into the vehicle and closer to the data it generates.
Another trend is that vehicle manufacturers are diversifying from pure passenger car production to protect themselves against an uncertain future where personal vehicle ownership is no longer the norm.
Early in 2018, Daimler led a $175 million equity round in Taxify, Estonia’s response to Uber. BMW took over Parkmobile to become the largest provider of mobile parking in the U.S., and in November, Ford bought Spin, an electric scooter sharing platform, in an effort to expand its micro-mobility offering.
Internet commerce and content is growing in importance, as well, with prospective vehicle owners now spending around 60% of their time searching online, according to research by Cox Automotive. KAR Auction Services, which signed five deals throughout the past 30 months, purchased B2B car auction website CarsOnTheWeb for more than $100 million. Meanwhile, in November 2018, Renault bought Carizy, a used vehicle marketplace. Renault hopes to capitalize on the fast-growing used vehicle industry between private individuals, opening another lucrative revenue stream for the French automaker.
Finally, the digital transformation of dealerships is growing. In a two-way street of deal-making, dealerships are incorporating enterprise software and customer-relationship management solutions to build better informed relationships with their prospective and current customers and ease the marketing and sale of vehicles, while online vehicle marketplaces are getting closer to the dealers. Two U.S.-listed online vehicle marketplaces made acquisitions in 2018: Cars.com made a $165 million acquisition of DealerInspire, a provider of automotive advertising SaaS and service. TrueCar picked up DealerScience, a dealership retail software provider, for $27 million.
Jo Goodson concluded, “We believe 2019 and 2020 will remain very strong for both acquisitions and funding in the autotech sector, despite the storm clouds on the horizon which may provoke a reduction in vehicle sales’ volume overall. Our rationale is that spending in the sector will not be impacted by short-term market turbulence. Autotech is a truly transformational sector, and we’re only at the beginning of a very long journey.”