Automotive technologies are evolving rapidly and impacting not only drivers’ automotive experiences but also, the automotive industry more broadly. From assistive technologies like bicycle sensors and back-up cameras to self-driving technologies, it appears that technological innovation will be critical in order for automotive companies to maintain their relevance and competitive edge in the marketplace. However, such innovation is complicated and largely outside of the auto industry’s wheelhouse. As a result, merger and acquisition (M&A) activity may be just the tool that these companies need for harnessing this innovation and competing effectively.
The automotive industry transformation
As alluded to above, the auto industry faces increasing pressure to offer innovative technologies that transform the traditional driving experience. This is especially the case given the prominence of technology in virtually every aspect of consumers’ daily lives. The difficulty is that automotive companies are generally not adequately equipped with the technological know-how and trained personnel to satisfy these evolving consumer demands. Moreover, as PwC reports, with rather poor total shareholder return, investors are likely reticent to invest in the automotive industry altogether. As a result, to overcome these obstacles, what appears to be happening is that the automotive and technology sectors are converging and one medium presumably instrumental in effecting this convergence is M&A.
Managing the transformation with M&A
M&A may be the key for automotive companies to stay (or become) competitive relative to the other players in the auto industry. According to EY Capital Insights (EY), by acquiring technology companies, establishing licensing deals and/or forming strategic partnerships, joint ventures and other such alliances, automotive companies can better ensure access to the technologies that can equip them with a competitive advantage. More particularly, through M&A, these companies will be better able to recruit the skilled personnel, acquire the associated technological expertise and foster the innovation that is required to attract consumers and distinguish them from their competitors.
From the technology industry’s perspective, acquisitions and partnerships with the automotive industry should appear to be just as strategic and effective. This is because, in contrast to automotive companies, technology companies possess the capabilities necessary for innovating and creating but lack the automotive expertise (and presumably, funding) for manufacturing vehicles anew and hence, implementing the technologies. In this way, M&A between the automotive and technology industries appears to be a mutually beneficial solution.
In the end, as EY suggests, a critical component for achieving success will be accurately predicting the automotive features that consumers will desire in the near future and then partnering with the technology companies that can successfully innovate and implement those features.
The author would like to thank Samantha Sarkozi, Articling Student, for her assistance in preparing this legal update.
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