Investments and Acquisitions in the Autotech and Mobility Sectors
The automotive and mobility sectors are undergoing rapid changes: Digital transformation (including AI) is not only affecting the actual vehicle (e.g. “smart cars”, “e-mobility”), the way it is controlled (“assisted driving”, “autonomous driving”) and its utilization (“mobility as a service”), but also the way it is designed (“digital design”, “customer tailored products”), manufactured (“connected supply chain”; “improved manufacturing”) and serviced (“predictive maintenance”). The collection of large data is having an impact on related sectors too (e.g. “usage-based insurance”).
New Areas of Business / New Players in the Market
New business models and mobility concepts have been developed around the classic automotive sector (see e.g. the VW/TenneT cooperation on sensor data analysis or mobile app-based shuttle-on-demand services in cooperation with large car manufacturers and local public transport).
New players have entered the market from a number of different angles: New concepts have changed the face of e-mobility (e.g. Tesla) and autonomous driving (e.g. Waymo, IBEO), “traditional” internet companies have expanded into the automotive sector, start-ups have acquired considerable shares of the mobility-as-a-service market in a record time (e.g. Uber) and further automation of the production process is creating new vendors of automotive manufacturing solutions.
Increased Investment and Deal Activity
This far-reaching transformation has led and will continue to lead to increased competition for the market share as well as to pressure to consolidate alongside growing deal and financing activity.
Intel’s USD 15.3bn acquisition of MobileEye and Samsung’s USD 8bn acquisition of Harman International Industries clearly substantiate what has been predicted by many over recent years: Autotech and Mobility in the meantime are considered as new strategic growth priority.
With Lyft and NIO having each raised more than USD 1bn in Q4/2017, in addition to mergers & acquisitions VC has also proven a strong interest in Autotech and Mobility.
New Legal Aspects to be Considered
The more mere manufacturing is turning into tech and AI and the more intangible assets like IP and data are becoming the driving factors of a business, the more challenging it is to value companies in this rapidly changing industry.
The same changes also have a huge impact on the legal part of risk evaluation during the due diligence phase of a transaction/investment and on the risk allocation between sellers and buyers or founders and investors, respectively. New areas of extended review include, for example:
- Regulatory Issues: With new, challenging business models and with new technologies and concepts to address specific tasks, regulatory issues often become increasingly important. Typical questions and concerns include (i) whether a rollout of a specific business model will be permissible in (all or some of) the target jurisdictions, (ii) what changes to business models or technologies may be required to comply with local regulations when targeting new jurisdictions, (iii) where changes in law may be expected, etc. Regulations on autonomous driving and public transport regulations for mobility services are only two examples.
- Competition and merger control: The new developments and challenges in the new Autotech and Mobility world lead to new acquisitions and co-operations involving classical automotive manufacturers and IT companies. Furthermore, classical rivals in the automotive industry form joint ventures and other co-operations in order to foster the shift from car manufacturer to mobility service provider. (e. g. the creation of a new “mobility powerhouse” by Daimler and BMW with combined car sharing (car2go/DriveNow), combined on-demand mobility (ReachNow/moovel), etc.). Together with the increasing importance of data, these co-operations raise new questions for the application of competition law and the assessment under merger control law.
- IP Rights: The automotive sector has always been innovative, and IP protection and IP ownership have always been significant issues in the due diligence process. The shift in innovation from classical engineering to software technology and AI, the emergence of new business models, and the fact that the distinctions between (car) manufacturing and mobility services are becoming more and more diluted, however, create an environment where strong IP portfolio management and protection assume even more importance.
- Data Ownership and Data Protection: Data has become increasingly important for the provision of new services in the Automotive and Mobility sectors. Predictive maintenance, personalized services and other services using data collected by cars are only a few examples. At the same time data ownership is often unclear, and for personal data very restrictive regulations have just recently come into force all over Europe (GDPR). Therefore, for data heavy services and business models a thorough legal evaluation of the data flows is often a key aspect.
- (Cyber-)Security: Security has been a huge issue in the automotive industry for decades. With more and more cars becoming connected, new areas of security are added. Security, in particular, gets a new layer of “cyber security”, aiming to protect unauthorized third parties from obtaining access through existing interfaces and network connectivity to relevant sensors and controllers of the vehicle. Manufacturers and mobility providers worldwide are faced with new legal requirements in this regard.
- Open Source Software: Open Source Software during the last 25 years has progressed from servers to devices and – with sensors and controllers being the backbone of many innovations – has made its way into almost every industry sector, including the automotive sector. Since (German) courts in the past had a relatively strict interpretation of the open source licenses, and since infringements can have a considerable impact on the distribution of products containing infringing devices, a thorough review and risk allocation has become increasingly important.