eResearch | Magna International Inc. (TSX: MG, NYSE: MGA) recently announced a proposal to acquire Veoneer Inc. (NYSE: VNE | SSE: VNE SDB).
Headquartered in Aurora, Ontario, Magna is one of the largest auto suppliers in the world. With a focus on mobility technology and over 60 years of expertise, Magna employs over 158,000 people and owns 347 manufacturing operations in 28 countries.
Based in Stockholm, Sweden, Veoneer is an American-Swedish provider of automotive technology. Veoneer manufactures radars, lidars, thermal night vision cameras, vision systems, and advanced driver assistance, and autonomous driving software. Having major global automakers as its customers, Veoneer also provides night driving assist systems, active safety sensors, mono-and stereo-vision cameras, airbag control units, and crash sensors.
The Transaction
With unanimous approvals by the Veoneer and Magna boards of directors, Magna will acquire all issued and outstanding shares of Veoneer for $31.25 per share in cash. Additionally, the transaction is supported by shareholders representing roughly 40% of the shares.
Magna paid a 27.7% premium on Veoneer’s stocks based on the closing share price of $24.48, as of March 31, 2021. The deal has an equity value of $3.8 billion and an enterprise value of $3.3 billion.
In 2020, Veoneer lost $544 million on revenue of $1.37 billion. The transaction values Veoneer at almost 2 times the 2021 consensus revenue of $1.76 billion.
Magna’s electronics operating unit will incorporate Magna’s existing advanced driver-assistance systems (ADAS) business and Veonner after the closing of the transaction.
By expanding Magna’s ADAS business with major customers and providing access to new customers and regions (Asia included), the acquisition of Veoneer will position Magna’s ADAS business as a global leader with a broad capacity.
The ArriverTM sensor perception and the driver policy software platform should keep running as an independent business unit according to Magna’s expectations. Moreover, Magna will earn Veoneer’s leading global position in restraint control systems.
Additional Highlights
- ADAS pro forma 2020 sales of $1.2 billion and capabilities across: (1) Key component categories, including camera, radar, LiDAR, and domain controllers; and (2 ) Software features/functions, including perception and drive policy.
- ADAS systems capabilities are expected to improve significantly relative to engineering and software competency, including ArriverTM sensor perception and drive policy software.
- Opportunity to offer more comprehensive ADAS systems due to the complementary nature of the two businesses.
- Stronger customer and geographic diversification. Magna will have access to the Asian market based on Veoneer’s business and footprint in the region.
- Synergies of approximately $100 million by 2024.
- The expected adjusted debt to adjusted EBITDA ratio should reach 1.5 at the closing of the deal. Magna informed the all-cash transaction still maintains a strong balance sheet. As of March 31, Magna held a cash position of $3.4 billion.
“We expect the combined entity to be an industry leader in active safety solutions, to enhance its position in complete ADAS systems, and to be well-positioned for the transition towards higher levels of autonomy. The acquisition is also consistent with our go-forward strategy to accelerate investment in high-growth areas,” said Magna CEO Swamy Kotagiri.
Industry Highlights
Automotive software solutions have become a critical component and offer important features such as improving vehicle performance, reducing maintenance, and improve safety and security, as well as in-vehicle user-friendly technology applications.
- According to a report from Allied Market Research early in 2021, the Automotive Software Market is expected to reach $43.5 billion by 2027, growing at an annual rate of 14.5%, and the autonomous driving software segment is projected to grow at 17% annually.
- Potential developments of 5G and Artificial Intelligence (AI) in semi-autonomous and autonomous vehicles are expected to play a key role for the players in the industry.
- Global automotive software market growth will be driven by increased ADAS features in vehicles, inventive advanced user interface (UI), and the demand for connected cars.
FIGURE 1: Stock Chart (1 Year) – Magna vs Veoneer
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