Technology trends in the automotive industry are driving change in the sector and M&A activity. New seamless mobility concepts are taking shape as digitally connected customers are changing perceptions of how they want to be mobile and connected. Personal car ownership stands to be replaced by modern shared solutions in an increasingly urbanized world.
Car makers, railroad and bus operators as well as other mobility providers are faced with a multitude of new challenges in addressing changing customer demands driven by new technologies. They need to develop new sustainable concepts and adapt to rapid technological change at the same time.
To discuss the developments and increasing convergence in tech and automotive sector, Pagemill Partners, the tech investment banking division of Duff & Phelps, brought together industry leaders for a panel in Germany’s tech centre, Berlin. Dr. Rüdiger Grube, CEO of Deutsche Bahn AG (DB), Germany’s national railroad company, delivered the keynote speech of the event explaining the challenges the former state-owned monopoly is facing in a world disrupted by non-traditional market entrants. The panel of experts giving their views on the latest sector trends and where the industry is headed in an increasingly connected world included Prof. Venkrat Sumantran, author of the upcoming book “Unravelling Contradictions in Future Mobility,” Klaus Entenmann, CEO Daimler Financial Services and Head of Daimler Mobility Services, and Torsten Kreindl, International Venture Capitalist. Kevin Iudicello, MD of Pagemill Partners, and Robert Bartell, Global Head of Corporate Finance at Duff & Phelps, shared their views and experience on how developments are driving M&A and corporate finance in the automotive and tech industries.
Embracing Change and Shaping the Future
In his keynote address, Dr. Rüdiger Grube described current mobility trends as the most disruptive developments in the transport industry since the privatization of the German railroad system in the 1990s. To deliver new services and seamless solutions, Deutsche Bahn (DB) is taking a threefold approach in its digitization strategy addressing customers, processes and business models. For its customers, DB is creating a new mobility platform which puts all relevant information about trains, travel schedules, connections and latest updates at their fingertips. The vision is to provide seamless door-to-door services, incorporating trains, public transport systems, rental cars, car or other sharing models, as well as shuttle services and rental bikes which are located at all trains stations. At the same time DB is 'digitalizing' internal processes to improve service quality and streamline processes.
Finding the New Equilibrium
Professor Sumantran identified increasing urbanization, with a growing adversity to personal car ownership, demands for sustainability, environmental protection and the search for cleaner solutions as well as a modern digitally connected customer as the driving forces behind the disruptive changes in the auto industry. Technological innovation offers customers a wide choice of products – e-bikes, Hybrids, electric and fuel cell powered cars – and solutions: car-sharing, ride-sharing and multi-modal mobility. Sumantran described this new multitude of options as a “smorgasbord” of possibilities to customize travel to personal priorities for time cost and carbon footprint.
At the same time, tools for dynamic pricing and user fees can be used to steer how people use their mobility while paying a fair price. “Apart from the multiplication of options for consumers this will trigger huge changes for cities and urban societies while causing massive disruptions for the highly integrated auto industry,” he said.
Kevin Iudicello presented a closer look at how disruptive changes in the auto industry have spurred M&A activity in the auto and tech sectors. In the first nine months of 2016, 2,041 deals were recorded, second only to the boom year 2000. Nearly 30 deals were over $1 billion in value in Q2, three over $5 billion and one over $25 billion with total deal volumes reaching $254 billion for the first nine months of the year. Chinese acquirers took center stage in the second quarter of the year, recording their highest quarterly volumes ever, with €32 billion, marking an increase of 19% compared with 2015. As a sign of growing convergence, non-tech acquirers announced 306 deals targeting tech businesses in 2016 up to September which rising by 27% from 2015. The sub-sectors which showed the highest M&A activity were automation, such as supply chain and manufacturing software, fleet tracking and dealership automation, and innovation with self-driving technology, connectivity and OS, ride hailing, ride sharing and electric vehicles.
In the following panel discussion, moderated by Grischa Bower-Rabinowitsch, Business Editor of Handelsblatt, the leading German business publication, participants elaborated on the “smorgasbord concept” previously described by Professor Sumantran and the necessity to provide seamless door-to-door solutions integrating various different means of transportation, a key driver of cross-sector M&A activity.
The sharing economy as embodied by ride sharing concepts such as Uber or Zip Car is influencing customer behavior and values, and traditional car makers and transport providers have been trying to keep up with the demand for new mobility concepts by developing their own solutions, such as BMW’s Drive Now offering, or teaming up with disruptive start-ups such as GM’s partnership with Lyft. The future role of electric and self-driving cars was also elaborated with most panelists agreeing that massive changes in mobility will take place in as short a time span as five years.
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