Deal activity in automotive technology subdued due to Covid-19

The automotive technology mergers and acquisition market registered an 11% drop in deal volume in the first half of 2020 compared to the second half of 2019, according to a recent report from technology M&A advisory firm Hampleton Partners. Deal value in H1 2020, meanwhile, fell to a meager $4 billion, signaling a lack of blockbuster deals.

The autotech sector has been hit hard by the pandemic, with restrictions on travel and fewer people using and buying cars. Ridesharing, meanwhile, has seen additional demand drops because of consumer safety concerns. At the height of the crisis, Uber saw rides drop by 80% and revenues fall by 29% year-on-year (YoY) – forcing the company to cut 3,700 jobs.

Between April 2019 and April 2020, vehicle sales declined by 80% YoY in Europe, 52% in the US, and a slim 3% in China. Automotive sales are projected to decline between 14% and 22% in the US, Europe, and China markets in 2020.

As Covid negatively impacted the wider industry, the M&A market for autotech dipped to 41 deals in H1 2020 from 46 deals in H2 2019. H1 2020 also saw half the number of private equity deals (3), suggesting that PE firms currently do not view autotech as a hot sector.

Transaction volume chart
“We saw the dramatic impact of the pandemic on automotive deal-making in the first half of 2020, with OEMs and suppliers distracted from M&A while putting out supply chain fires and dealing with reduced demand for new vehicles,” said Miro Parizek, principal partner, Hampleton Partners.

“It remains to be seen what the long-term impact on car usage and buyer habits will be post-Covid, but as the first six months of 2020 closed out we noted a recovery in China and we anticipate that the market overall will improve in 2H2020. After all, with disruption comes new opportunities for consolidation and inorganic growth.”

One sustained trend is that tech giants are continuing to expand in the autonomous and electric vehicles spaces, while OEMs are repositioning themselves as “tech” companies.

Regionally, in the past 30 months approximately 54% of autotech targets were based in North America, while 34% were based in Europe. North American targets accounted for 61% of deals in Q1 2020, but fell to 36% in Q2, amid general uncertainty of the US economy during the pandemic.

The Hampleton report divides the autotech sector into four segments. Enterprise applications accounted for the largest portion of transactions (35%), followed by mobility and fleet management (26%), embedded software and systems (25%), and internet commerce and content (14%).

Autotech M&A transactions by subsector

Mobility and fleet management saw a slight uptick in deal volume from H2 2019 to H1 2020, rising from seven to nine deals. This was driven in part by logistics companies gearing up their freight and transportation assets to cope with increased deliveries from an e-commerce demand surge in the pandemic. For example, fleet management system Omnitracs acquired VisTracks, a provider of SaaS-based compliance solutions for transport and logistics.

The largest deal in the area was Intel’s $840 million acquisition of Moovit, an Israeli startup that analyzes traffic patterns and makes transportation recommendations. Intel will use the acquisition to expand its Mobileye mobility-as-a-service offering, as well as support its plans of being a full-scale mobility provider, including robotaxi services.

Embedded software and systems deals dropped from 11 to 8 in H1 2020. Transactions in the area focused on mature targets based around AI technology, according to Hampleton.

The largest deal was Amazon’s acquisition of Bay Area self-driving car startup Zoox for $1.3 billion. Amazon will work with Zoox to create a fleet of robotaxis to compete with Alphabet’s Waymo.

Enterprise application deals rose from 16 to 19 in H1 2020. Volkswagen bought the rest of digital marketing services firm Diconium, having previously acquired 49% of the Stuttgart firm in 2018. VW is looking to build a global online sales platform that allows customers to purchase and manage digital services for their networked vehicles.

Internet commerce and content deals, meanwhile, dropped from 12 deals in H2 2019 to 5 deals in H1 2020. 

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