With technology evolving at a fast pace, driverless cars, that seemed to be only a possibility few years ago, have become a reality today, accompanied by the expectation of a bright future. In my previous post, we talked about digital M&A deals and how they are shaping the world of M&A. Recently, one of the biggest tech acquisitions of 2017 has come into light. Intel announced the biggest deal of the driverless car industry on March 13, 2017. This American chip giant, has confirmed its decision to buy the Israeli driverless tech firm Mobileye for $15.3 billion.
Lately, with the onset of increasing digital acquisitions in the tech industry, a lot of technology companies are trying to outsmart carmakers by developing the brains of these future vehicles. Hence, the market has become increasingly competitive as a lot of new startups are also making attempts to enter the world of auto-tech.
In the sector of autonomous driving, this $63.54 per share cash deal is the biggest purchase till date. The EyeQ software of Mobileye is used by most of the world’s carmakers, helping vehicles with lane driving and emergency brakes, which is a must have for autonomous vehicles. This system, which is currently fitted in over 15m vehicles but is set to be used by many millions more, can also collect information from installed cameras to continuously update the incredibly detailed maps that self-driving cars will require. As quoted by the Intel Chief Executive Brian Krzanich, this acquisition is akin to merging the “eyes of the autonomous car with the intelligent brain that actually drives the car.”
Both these companies are already in terms of collaboration with the German automaker BMW bringing a fleet of 40 self-driving test vehicles in the second half of this year. The acquisition of NXP, the largest automotive chip supplier by Qualcomm in October last year, has definitely had an impact on chipmakers. The Qualcomm-NXP deal has led to this new trend and is attracting a lot of attention by most companies, leading to entry of companies like Intel and NVIDIA in the market of autonomous driving components (ETAuto.com, 2017).
Intel will have to go a long way to come close to Nvidia in the autonomous car market because it goes beyond hardware and delivers a complete solution packed with hardware, software, and sensors to develop a fully autonomous car platform. Previously, we saw that Intel’s (INTC) acquisition of Mobileye (MBLY) could be a long shot when it comes to future growth opportunities in autonomous driving.
There has been a lot of discussion about this acquisition, especially after the stocks saw a downfall of 2.0% post the merger announcement. After missing out on the mobile revolution, Intel is now trying to catch up, investing in new areas such as autonomous cars and artificial intelligence.
According to Stacy Rasgon, an analyst at Bernstein, Intel’s revenues of $4.0 billion from M&A’s have been way less than its expenditure of $30.0 billion in the past few years. Their latest move in its catch-up game is the acquisition of Mobileye (MBLY). The success of this acquisition is dependant on the integration of these two companies and the synergies of this deal. With a history of failures in M&As by Intel, the success of this Mobileye merger is already under suspicion by analysts. Hence, Intel is integrating its Automated Driving Group with Mobileye in order to mitigate the integration risk.
M&A deals in the driverless industry
In the previous year, a number of tech companies, have been active in partnerships, acquisitions, and ventures in the driverless market. Some of the large tech companies have also worked on self-driving programs.
- General Motors is one of the best examples for being the most active by making more than 15 acquisitions since 2011, with Cruise Automation being the latest one.
- Ford is a good example with acquisitions of automotive application maker Livio, machine learning company SAIPS and shuttle transit service Chariot. The company has been making huge investments in private companies working on cloud softwares, LiDAR (Light Detection and Ranging) and mobile car rental technologies.
- Uber’s acquisition of the self-driving truck maker Otto for $680.0 million is also a recent example of the such M&A deals in the driverless industry.
Growth opportunities drive acquisitions in automotive market
A lot of analysts have been less enthusiastic about this deal and Intel’s diversification move. There has been news about the price of this acquisition being too high and how it will be another failure in Intel’s M&A history. I feel that Intel will benefit a lot from this move, especially after lagging behind in the transition in the mobile sector. Its entry into the driverless industry will be a lucrative deal for this tech giant. Mobileye, with Intel’s resources, will be able to scale up its hardware and software systems. Secondly, as part of this deal, Intel’s automotive team will move to Israel to work under the company’s CEO Ziv Aviram and CTO Amnon Sashua. Intel has a base in Israel with 10,000 employees and hence, understands the culture of the country. Also, only by absorbing Intel’s automotive team, Mobileye can continue to work directly with its many partners. Hence, for Mobileye, it is simple access to greater resources (Reuters, 2017).
Leaving the price aside, I think this deal will be beneficial to both companies with the chances of this merger going high. The collaboration of the camera and mapping expertise of Mobileye with the chip and computing skills of Intel makes absolute sense for Intel to profitably survive in this sector. Hence, Mobileye will definitely provide a value addition to the company, not only as a source of data, but in the revenues and profits as well.
Therefore, Intel and Mobileye, together are set to become very powerful and large in the car-tech industry.