Samsung Electronics has announced that it has entered a definitive agreement with US-based Harman International Industries to buy the automotive industry supplier.
In a statement, the South Korean company said that it is making a cash offer of USD112 per share, which amounts to a total equity value of USD8 billion.
The purchase price is based upon a 28% premium over Harman's closing stock price on 11 November and a 37% premium over its volume weighted average price on the previous 30 days. Samsung said that it expects to use cash on hand to fund the transaction.
The agreement has been unanimously approved by the boards of directors of both companies, but will be subject to approval by Harman's shareholders, regulatory approvals, and other customary closing conditions. The deal is expected to be closed in mid-2017.
There is a lot of interest in the connected car space from consumer electronic- and high-tech-companies, especially as the smartphone industry has reached an inflection point. Apple, Google, even Samsung’s more director competitor, LG, have all made inroads into this space, particularly in software and services, autonomous car, and electric vehicles (EVs).
Harman has $25 billion worth of future orders for its infotainment systems, audio components, telematics units, ADAS equipment, and automotive services and software, which allows Samsung to know what the automotive market wants and by whom.
Samsung is a major supplier of automotive displays and semiconductors, and the Korea consumer electronics company views both of these sectors as areas it can grow, especially now that smartphone growth seems to be plateauing.
Currently, IHS Markit forecasts Harman will have 10% market share by revenue in 2022 across infotainment, telematics, acoustics, and display systems collectively. This will account for about $6.5 billion in revenue in 2022 of an estimated $61.3 billion market. This 10% market share has the potential to grow, given investment and cost synergies from Samsung.
The acquisition of Harman could produce greater enterprise-wide efficiencies when it comes to procurement of infotainment modules and instrument cluster displays, for instance, providing complimentary benefits for both business lines.
“We will absolutely gain the synergy of procurement from this deal,” Harman CEO Dinesh Paliwal told IHS Markit. “I think, too, having our [Harman’s] competencies, combined with the scale of Samsung’s procurement of technology components and sensors will also allow us to provide proof of concept to clients faster for seamless integration of new autonomous and connected car features,” Paliwal added. In this fast-paced part of the market, speed is of the essence.
For Samsung, Harman’s tier one (1) supplier status gives Samsung immediate improved access to the market. Harman has established relationships and partnerships with automakers: BMW, FCA, and VW currently comprise 40% of Harman’s net sales; and the American supplier works with dozens of other automakers. That foothold could eventually act as a springboard for Samsung into other spaces in automotive as well—the company has tried make inroads with its battery cells in the automotive space, for instance—helping with the strategic long-term upside of this acquisition.
Conclusion
From IHS Markit’s perspective, the combination of Samsung and Harman in terms of its benefits for each in automotive technology is a no brainer.
Samsung has tremendous scale when it comes to procurement, allowing it to bring efficiencies to the supply line when it comes to Harman’s products.
Harman is a market leader when it comes to automotive services, such as cybersecurity, over-the-air updates, analytics, cloud services, and apps integration, all of which are growth white spaces in automotive.
Furthermore, there doesn’t appear to be much overlap between both companies and no existing relationships or agreements that would negatively impact the tie-up.