The next industry hot wind: cross-border mergers and acquisitions of automotive electronics

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In 2016, the impact of the auto industry reform on the entire manufacturing chain continued to ferment. In addition to the industrial chain related to new energy vehicles, with the rapid release of the market potential of the Internet of Vehicles and intelligent driving technology of up to trillions of yuan, auto electronics began to become the next wind port of the capital boom.
On February 16, after a hundred days of suspension, the auto central control system supplier Junsheng Electronics released a fixed increase and major asset purchase plan, saying that the company planned to issue no more than 360 million shares in private, and the total amount of raised funds would not exceed 8.6 billion yuan. Among them, it is proposed to acquire KSSHold-ings, Inc., a US company with US $920 million in cash (hereinafter referred to as KSS) and increased its capital with US $100 million, and acquired the auto information sector business of TS Dawn in Germany with 180 million euros in cash. The transaction consideration of the two cross-border acquisitions was equivalent to nearly 8 billion yuan. The surplus of the raised funds is used to supplement the working capital of the acquired company.
It is not just giants like Junsheng Electronics that aim at the potential of automotive electronics. On the evening of February 17th, Aerospace Technology, which focuses on automotive instrumentation, also announced its intention to acquire overseas assets of the controlling shareholder “Aerospace Science and Technology Institute” (hereinafter referred to as “Aerospace Science and Technology Institute”). RMB 1.749 billion, involving the world’s leading automotive electronics manufacturers, further expanding the industrial chain of their automotive electronics business segment.
Behind the competition for the commanding heights of automotive electronics technology through domestic and foreign mergers and acquisitions by auto parts companies is the trend towards intelligent, energy-saving, and networked vehicles, which is faster than previously expected. Especially with the upsurge in the concept of driverless vehicles, the trillion-level market is considered imminent.
“At present, whether it’s Internet based cars or components, the main task is to prepare for intelligent cars and accumulate technical capabilities.” Cao He, an analyst in the automotive industry at National Securities, said that for domestic suppliers of automotive electronic components with weak technology, the wave of cross-border acquisitions is irresistible.
According to the research report of securities companies, the scale of domestic automotive electronics market has accounted for 25% of the global market. With the same level of market space of 100 billion dollars as consumer electronics, automotive electronics is expected to be completely detonated in the near future with the accelerated development of technology. In order to meet this hot wind, domestic auto electronics enterprises have begun to carry out overseas mergers and acquisitions on a large scale to occupy the technological commanding heights.
Signal from Wuzhen
A consensus is that the Internet of Vehicles will become the next industry outlet. The reason is simple: whether it is the state’s support for new energy vehicles, or the Internet of Vehicles project jointly promoted by automobile enterprises and the government, as well as the major global giants’ heavy investment in research and development of driverless technology. All of these have made automotive electronics a recognized hot sector in the next five years at least. “Automotive electronics has become the fastest growing segment of the automotive industry and has been recognized as leading another revolution in the development of automotive technology. It is estimated that the cost of electronic systems will account for 50% of the total vehicle cost in 2020 (40% at this stage).” The automotive electronics report released by Guoyuan Securities pointed out that with the increase of the penetration rate of automotive electronics, the future automobile will develop towards intelligence, In the context of the slowdown in the global automotive market, the development of automotive electronic technology and the growth of the industry will be significantly higher than the growth of the whole vehicle industry.
What made this segment popular in early 2016 was the news from the Wuzhen World Internet Conference at the end of 2015. On December 14, 2015, Baidu announced the formal establishment of an autonomous driving business unit, which is expected to demonstrate the formal commercial driverless vehicles in ten urban areas across the country in three years; 5 years of mass production; In 10 years, 80% of new cars will achieve autonomous driving. At the second Wuzhen World Internet Conference held two days later, Baidu’s driverless car appeared in front of politicians from various countries. I believe Baidu has officially declared war on Google’s unmanned vehicle, which has undergone six years of testing.
So far, since 2014, giants such as Apple, Google, Tesla, Baidu, Alibaba and Tencent have announced to increase the layout and investment of Internet of Vehicles. It is pointed out that in the next 3-5 years, the global market scale of the Internet of Vehicles is expected to reach 300 billion yuan.
As a new trend of automobile informatization and intelligence, the Internet of Vehicles has become the strategic focus of all automobile manufacturers around the world. The cooperation between automobile enterprises and Internet giants including Google and Baidu has become the most frequent form of cooperation in 2015.
Unmanned driving is the commanding height of the Internet of Vehicles, and is one of the fastest and most spacious scenarios for artificial intelligence applications. As the leader of the Chinese Internet, Baidu’s determination in the field of unmanned driving has undoubtedly injected the most powerful shot into the parts manufacturers preparing to enter the automotive electronics field. These auto parts companies are more convinced that in the next decade, automotive intelligent technology will become the fastest rising link in the automotive industry chain.
According to Deloitte’s forecast, the global automotive electronics market will reach 234.8 billion US dollars in 2016. It is expected that the size of China’s automotive electronics market will increase by 12.7% in 2016, reaching over 74 billion US dollars. McKinsey predicts that by 2025, the output value of driverless vehicles will reach $200 billion to $1.9 trillion.
Although there has been controversy in the industry about the timing of the industrialization of driverless vehicles, with the support of policies, industrial catalysis is believed to exceed expectations. More importantly, including Tesla, Google, Apple, Baidu, LeTV, BMW, Volvo, Honda, Bosch and other giants, it is generally expected that driverless vehicles will be mass produced by 2020, and the development and road test of driverless vehicles of many brands will also be released in 2016. “Like new energy, the first domino pushed down by the upsurge of driverless concept is naturally the R&D of intelligent technology and the supply of auto electronic parts,” Cao He said.
Shortcut to cross-border M&A
The two mergers and acquisitions announced on February 16 are another big deal of the continuous cross-border acquisition of the auto central control system supplier Junsheng Electronics. In the past five years, this auto parts company has gradually shifted the focus of the entire enterprise to the automotive electronics sector related to human-vehicle interaction technology.
Junsheng Electronics is a representative enterprise of the M&A development route. As early as 2011, Junsheng Electronics acquired the old German automotive electronics supplier Prius, thereby improving its competitiveness in the field of BMS (battery management system); In August 2014, Junsheng Electronics merged with IMA, a German robot company; Three months later, Junsheng Electronics again acquired QuinGmbH, a German intelligent driving company, for 90 million euros, in order to further improve the system construction of its intelligent driving technology. In March 2015, Junsheng Electronics invested 500 million yuan to set up its subsidiary Junsheng Car Network, which is used for the investment and acquisition of intelligent Internet and Internet of Vehicles technology and enterprises. The first investment project is to acquire 10% of the equity of the Internet of Vehicles service platform development and operator Car Voice Network.
Through the shortcut of cross-border acquisition, Junsheng Electronics has now become a supporting supplier of BMW, Audi, Mercedes-Benz, Porsche and other high-end car series.
KSS, an American company acquired by Junsheng Electronics again this time, is one of the world’s top suppliers of automotive safety systems. It has five research and development centers around the world, and its products include passive safety, active safety, intelligent drive-related products, etc; The automotive information segment business of TS Dawn, a German company, mainly includes the development and service business of on-board information systems, and its main products include navigation and driving assistance, intelligent car couplets, video entertainment and on-board online cloud services.
“For core components such as engines and gearboxes, domestic component companies still have significant technical disadvantages in automotive electronics. Under current circumstances, it is impossible to catch up with and surpass them through several years or even decades of research and development, so mergers and acquisitions are the most effective way.” Cao He pointed out.
The fundamental transformation in the supply system and supply level of major international automotive industry manufacturers determines the future profit level. “
In fact, under the argument that “intelligent automobile will become an opportunity for China’s automobile industry to overtake in corners” and the reality of weak technical foundation, improving the layout of Internet of Vehicles technology through overseas acquisition has become the common choice of most automotive electronics suppliers.
The merger and acquisition of AVIC Technology is also the cross-border merger and acquisition of automotive electronics technology of AVIC after the acquisition of the manufacturer of automotive electronics module by AVIC Technology and Industry Co., Ltd. and two other enterprises in June last year.
In March 2015, Derun Electronics announced that it planned to invest 56.82 million euros to acquire 60% of the equity of MetasystemS.p.A (Meta), an Italian automotive electronics manufacturer, in order to expand the automotive electronics and core parts supply market.
What is worth noting is that in the securities market, since the end of 2015, in order to meet the imminent outbreak of the Internet of Vehicles, various securities institutions have begun to intensively investigate these listed companies of parts and components that expand the automotive electronics business through mergers and acquisitions, including Derun Electronics, which has transformed from electronic connectors to automotive electronics, Shunluo Electronics, which has transformed from military electronics and automotive electronics, and Quanzhi Technology, which has expanded in such emerging directions as automobile recorders From braking and steering components to Wan’an Technology of the Internet of Vehicles. Last year, the downturn in the traditional engine parts market also boosted the transformation of relevant enterprises to the automotive electronics sector.
However, there are also many multinational component giants eyeing the big cake of Chinese automotive electronics. Currently, leading international manufacturers such as Bosch, China, and Delphi have all deployed in China. Objectively speaking, overseas mergers and acquisitions and equity participation in overseas enterprises are also the most effective ways for domestic automotive electronics suppliers to confront them.

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