Valuing Companies in the Autonomous Vehicle Industry
Over the past few years, autonomous vehicle technology – specifically advanced driver-assisted systems (“ADAS”) - has garnered increased focus in the investment world as the underlying technology has become more sophisticated and accurate.
ADAS is defined as those systems that assist with the tasks involved in operating a motor vehicle such as monitoring, warning, braking and steering. The global automotive ADAS market is expected to reach an estimated $29.7 billion by 2022 and it is forecast to grow at a CAGR of 21.1% from 2017 to 20221.
ADAS technology is coming to disrupt the traditional automotive industry, with estimates that self-driving vehicles will be standard by the end of the 2020s. This blog will look into different valuation considerations for both private and public companies in the industry and look to analyze the following questions:
- How can one make sense as an investor in the ADAS market when many details of recent transactions are not publicly available and multiple stakeholders, with different interests, are investing in ADAS technology?
- What signals can one take from publicly traded companies in the industry?
In analysing the above questions, we hope to provide relevant valuation considerations for a burgeoning industry.
Increased Investment in ADAS Startups
The overall auto tech industry is seeing an increased number of deals and fundraising since 2014, with 2017 set to be a record year:
Source: CB Insights
Of the 2017 YTD investments, 67% of total investment was for companies raising seed to series B financing. Startups are not an easy company to value because of the uncertainty of its ability to succeed on an on-going basis. One of the most challenging aspects of valuing a Company in the ADAS industry is the lack of publicly available information that is normally used to establish valuations.
Furthermore, the increasing appetite to invest in auto tech startups, which includes ADAS, raises questions about how to value these disruptive technologies. While large capital investments in autonomous vehicle startups are a good indicator of interest in the field, there is limited information on the valuation multiples used, as these private companies often do not publish financial reports or the valuations used as a basis for the investment.
Investment from Different Investor Types
The following table shows select investments, in order of investment amount, in privately held ADAS companies over the last two years:
The table above illustrates the wide variety of investors interested in the ADAS industry. The total investment in the table is approximately USD 3.7 billion. Investors range from traditional venture capitalists, later stage start-ups such as Uber, traditional automotive companies who have decided to acquire the technology rather than develop it in house, and high-tech companies with vast semiconductor operations that will implement the ADAS technology into a future self-driving car computer system (IBM, Intel).
All of these investors are seeking to gain exposure to the ADAS market, and each stakeholder has different interests and objectives from the other. For example, a venture capitalist’s valuation would not include potential product synergies such as a traditional automotive company like GM or Ford. The consideration of synergies would likely create a more optimistic forecast and could potentially realize a higher valuation than if a venture capitalist was the sole investor.
Public Companies Analysis
As stated earlier, a majority of the pure ADAS companies are startups. Most public companies today investing in ADAS technology such as Ford, GM and Delphi, do not provide accurate industry valuation multiples for the autonomous vehicle market, because autonomous driving is not a part of their core business.
However, a few pure-play ADAS companies do exist, and their involvement in recent transactions can shed light on the valuations placed on ADAS technology.
We selected four public companies for the following reasons:
- Mobileye: Acquired by Intel for $15.3 billion in March 2017. Mobileye is currently the leading supplier of ADAS software, with more than 25 automakers as partners. Their technology supports sensing, mapping and driving policy.
- Foresight Autonomous: Another Israeli ADAS company, it is dual listed on the Tel Aviv Stock Exchange and NASDAQ. Foresight's current offering includes Eyes-On, a two to four camera system, which provides 3D stereo visions.
- Harman International Industries: Acquired by Samsung for $8 billion in March 2017. Harman International Industries offers connected car solutions to automakers, including 3D and augmented navigation, telematics control units and connected safety features, such as rear-view and wide-angle camera applications.
- NXP Semiconductors: Pending acquisition by Qualcomm for $39 billion, the largest deal in the chipmaker's history. NXP develops automotive semiconductors- and has multiple ADAS technology offerings across the sensing and controlling segments.
The following table presents the trailing twelve-month revenue and EBITDA multiples as of September 26, 2017 or the last day it was publicly traded:
All three of these companies have since been acquired and it is interesting to see the vast difference in multiples. NXP and Harman, two well established companies with revenues greater than USD 5 billion, have slightly similar multiples2, with a revenue multiple ranging from 1.5X-4.6X and an EBITDA multiple of 13.2X-13.6X. However, these companies have other operations that are not in the ADAS space and therefore may have diluted the pure ADAS multiple. Mobileye, on the other hand, has multiples that are 11 and 7 times greater than that of NXP and Harman. How Intel arrived at the acquisition price is based on many internal considerations that are not public information and likely include synergy opportunities.
Foresight has no revenues and a negative EBITDA, therefore it does not have multiples that can be properly analysed.
The below graph yields additional considerations with regards to how market sentiment can affect valuations (updated September 26th, 2017):
- Acquisition Premiums: Three of the above companies have been acquired over the past year. In all cases, the acquirer paid a premium of above 15%. The acquisitions were made by well-known technology providers and the premium paid for the share price can be a result of internal analyses with regards to synergies that the public did not take into consideration.
- Industry Momentum: Significant industry events can directly and indirectly impact other companies in the ecosystem. Shortly after Mobileye was acquired by Intel, Foresight’s price sharply rose, an 254% increase from March 10th, 2017 to its peak on June 5th 2017. The increase was a result of strong Israeli interest in a similar Company to that of Mobileye. The momentum from the Intel Acquisition allowed Foresight to raise over 40 million NIS through three separate offerings on the Tel Aviv Stock Exchange, in a short period of two weeks.
- Dual Listing Impact: In June 2017, Foresight began trading on the NASDAQ. Since the dual listing, Foresight’s share price has fallen 44% since its peak of $2.19 on June 5th, 2017. After receiving much local hype in the Israeli market, the public listing in one of the most active stock exchanges broadened Foresight’s exposure to worldwide investors and impacted overall sentiment in the valuation. However, Foresight is still up 150% since the beginning of the year, a sign that individual company milestones and overall market sentiment have still had a net positive impact on the company valuation this year.
The ADAS industry is one of many emerging industries that will impact our daily lives in the near future. However, while aspects of self-driving technology are already present in the marketplace, it will take several years before the technology is prevalent in our daily lives. The timeline to becoming a mature technology can create volatility and uncertainty in the market. We believe that the above analyses lead to three important valuation considerations to consider as the market matures:
- Variety of Investors: Investors have ranged from traditional venture capitalists, technology providers, and automotive companies. The investments of well-known companies such as IBM, Intel, GM, and Ford signal that self-driving car technology is closer to becoming prevalent then a far-off fantasy.
- Start-Up Market: The industry is being driven by innovative younger companies who are disrupting the traditional ecosystem. As little information is publicly available on investments made in start-ups, one needs to conduct their own due diligence to arrive at a valuation. How developed is the Company’s technology? What is the time to market? Does the budget make sense with the time to market? When can the company expect sales? If it already has sales, how stable are future revenue streams?
- Impact of Synergies: Large companies are investing in the space, and some have paid large premiums to acquire technology. Especially when valuing a younger company, does the forecast include revenues from potential synergies with another entity?
- Market Momentum: As there is a lot of excitement around the overall industry, don’t let the buzz motivate your decision making. There is a large variety of players in the industry, so it’s important to block out the noise and analyze the Company on a stand-alone basis to understand its value proposition in comparison to the market.
1 “Growth Opportunities in the Global Automotive ADAS Market,” August 2017, Research & Markets
2 On September 28, 2016, shares of the Dutch automotive chipmaker, NXP Semiconductors, closed at $82.24. On the 29th, rumors of Qualcomm's interest in a takeover of NXP boosted the company's shares by around 17% to a closing price of $96.12. The two companies reached a definitive agreement on October 27, 2016, in which Qualcomm will purchased NXP for $110 a share. The two companies have since been going through the hurdles of regulatory approval; however, NXP has been trading above $100 since March of this year. Currently, major NXP shareholders, including Elliott Management Corp, are pressuring NXP to renegotiate with Qualcomm for a higher purchasing price.
On November 14, 2016, Harman International Industries was trading at around $88. When Samsung announced their intended acquisition of Harman International Industries for $112.00, a 27% premium.
On Friday March 10 2017, shares of Mobileye closed at $47.27. On, Monday, March 13, 2017 Intel announced its acquisition of Mobileye, and shares closed at $60.62 that evening, an increase of 28%.