Industry 4.0 - Opportunities from an M&A Perspective
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Intro to the growth opportunities from Industry 4.0 for the manufacturing industry, including Scope of Industry 4.0 - Industry 4.0 is based on the Internet of Things with its ubiquitous digitization of physical objects through sensors - Enterprise applications in factories are assumed to provide the greatest impact with up to USD 3.7 trillion in 2025 Evolution of Business Models Industry 4.0 - The main disruption from Industry 4.0 will come from the shift to an “outcome economy” with reshaped value chains Industry 4.0 Strategies at Incumbents - KUKA secured industry leadership in robotics and created value through its holistic Industry 4.0 readiness-strategy (including impact of its M&A activities - Reis Robotics, Swisslog) - German automation and machine tools leaders aim to build Industry 4.0-enabling platforms for their customers (including strategy insights to Dürr and Trumpf) Drivers of M&A in Industry 4.0 Strategic M&A transactions can be seen as an effective way to accelerate transformation path towards Industry 4.0 Industry 4.0-related M&A activity in DACH Increasing deal activity in German-speaking Europe, though highly fragmented target market with small deal sizes Conclusion and Outlook Most players need to embrace Industry 4.0 more comprehensively in order to exploit its opportunities and stay competitive
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Industry 4.0 - Opportunities from an M&A Perspective
- 3. August&2016 3 Scope&of&Industry&4.0 Sources:&Gartner,&McKinsey,&Zühlke LowApower&sensors)enable)every)object)to)become) part)of)the)digital)world)in&the&Internet&of&Things&(IoT).& Here,&a&digital&“clone”&of&the&object,&its&functions&and& associated&processes&is&created,&can&be&analyzed&and& manipulated. These&connected&IoT devices)are&estimated&to&grow) rapidly)from&6.4bn&(2016)&to)20.8bn)(2020))(CAGR&34%). Four&technology&clusters&drive&this&development: ! Data)and)connectivity ! Analytics)and)intelligence ! HumanImachine)interaction ! DigitalItoIphysical)conversion Industry)4.0)is)based)on)the)Internet)of)Things)with)its) ubiquitous)digitization)of)physical)objects)through)sensors Development)of)the)Internet)of)Things Internet)of)Things)(IoT) Leading&to&new)consumer)and)enterprise)applications within&revised)value)chains)and&business)model) opportunities for&both&incumbents&and&new&players
- 4. August&2016 4 Enterprise)applications)in)factories)are)assumed)to)provide) the)greatest)impact)with)up)to)USD)3.7)trillion)in)2025 Scope&of&Industry&4.0&(contd.) Source:&McKinsey&Global&Institute Sources of&value&created&by&IoT: ! Efficiency&/&productivity&gains ! Energy&savings ! Greater&quality& ! Higher&flexibility ! Inventory&optimization ! Health&and&safety&improvements Requirements of&estimated&impact: ! Interoperability&of&IoT&systems ! Usage&of&more&collected&data ! Security&and&data&privacy ! Intellectual&Property ! Transformed&organizational& structures&with&the&right&talent ! Regulatory&approvals
- 5. August&2016 5 Evolution&of&Business&Models&in&Industry&4.0 Sources:&WEF The)main)disruption)from)Industry)4.0)will)come)from)the)shift) to)an)“outcome)economy”)with)reshaped)value)chains ! Based&on&aggregated&data&and&their&customers’&needs& businesses&will&need&to&guarantee)certain)outcomes of&their& products/services,&resulting&in&greater)risks)for&businesses ! Collaboration)of&businesses&across)ecosystems)required&to& successfully&meet&customers&needs ! Emerging&of&new)software)platforms)to&facilitate&these& ecosystems,&which&leaders&will&benefit&from&their&scale&and& allow&them&to&set&standards Disruptions)from)the)Outcome)Economy)
- 6. August&2016 6 Industry&4.0&Strategies&at&Incumbents& Source:&KUKA KUKA)secured)industry)leadership)in)robotics)and)created) value)through)its)holistic)Industry)4.0)readinessIstrategy Key)Facts ! Worldwide&leading&manufacturer&of& industrial&robots&with&12.3k&employees& ! #1&in&global&automotive&robotics ! Revenue&2015:&EUR&3.0bn&@&4.6%& EBIT&margin ! Cash&2015&EoP:&EUR&496m ! Listed,&94.6%&acquired&by&China’s& Midea Group&until&Aug&2016 Industry)4.0Irelated)Developments ! Early&on&embraced)connectivity)of)their)robots)and&utilized&their&data&via&cloudAbased& networks.&E.g.&set&up&first&connected&automotive&factory&in&2006&for&Jeep&Wrangler&in&the&US& through&linking&their&259&robots&to&60k&devices&in&an&IoT&solution&allowing&to&reliably&create& one&body&every&77&seconds&in&the&desired&configuration ! Provide&with&KUKA&Connect&an&own&software)platform)for&third&parties&to&integrate&with&in& order&to&leverage&the&collected&data ! Through&continuous&product)innovations)and)solutions,&such&as&selfAlearning,&sensitive& light&robots,&entering&new&industries,&such&as&healthcare&(together&with&Siemens,&among& others)&and&eCommerce ! Transformed)organization)towards&a&global&technology&group&with&strategic)partnerships Impact)of)M&A)Activities ! Acquisitions&have&been&a&major&driver&of&this&development.&Main&ones&include ! 2013:&Majority&share&acquisition&of&system&integrator&Reis)Robotics)– offering&now& under&KUKA&Industries&integrated&robots&and&plant&engineering&knowAhow ! 2014:&Acquisition&of&the&automation&provider&Swisslog – enabling&selfAorganizing&value& chains&in&distribution&and&healthcare ! Resulting&in& ! Acceleration&of&product/solution&portfolio&(R&D) ! Entries&of&new&industries&(eCommerce,&healthcare)&and&further&market&penetration& (China) ! Extended&sales&revenues&through&synergies ! More&diversified&revenue&sources&with&now&50%&from&systems&(31%&robotics),&whereof& already&50%&of&total&are&from&nonAautomotive&industries
- 7. August&2016 7 Sources:&Dürr,&Trumpf German)automation)and)machine)tools)leaders)aim)to)build) Industry)4.0Ienabling)platforms)for)their)customers Company)Profile ! World's&leading&mechanical&and&plant&engineering&firm&with& revenue&of&EUR&3.8bn&(2015)&@&7.1%&EBIT&margin,&14.9k& employees ! Listed Industry)4.0Irelated)Developments ! Implementing&first&projects&around&smart&factory& ! Woodworking&machinery&provider&HOMAG&(acq.&in&2014)& realized&batch&size&1&production&at&Polish&plant&of&fourth& largest&European&furniture&manufacturer ! Continuously&digitizing&own&processes& Impact)of)M&A)Activities ! 2015:&Acquisition&of&iTAC,&a&leading&software&provider&of& Manufacturing&Execution&Systems&(MES)&(approx.&EUR& 15m&revenue&(2015)) ! Complementing&Dürr’s own&MES&(EcoEMOS)&and& building&the&basis&of&digital@Dürr strategy Company)Profile ! Worldwide&leading&company&for&machine&tools,&lasers&and& electronics&for&industrial&applications&with&revenue&of&EUR& 2.7bn&(2014/15)&@&13.1%&EBIT&margin,&10.9k&employees ! FamilyAowned Industry)4.0Irelated)Developments ! Offering&with&TruConnect an&automation&workflow&solution& with&focus&on&increased&efficiency&for&small&batch&sizes ! In&2015,&founded&the&software&startAup&AXOOM (in& cooperation&with&Karlsruhe&Institute&of&Technology)&that& develops&a&business&platform&for&the&manufacturing&industry ! Open,&modular&platform&aiming&to&integrate&players& from&the&whole&value&chain,&including&an&app&store&for& third&parties ! Helping&Trumpf’s customers&to&stay&competitive&by& enabling&Industry&4.0 Industry&4.0&Strategies&at&Incumbents&(contd.) Focus)on)M&AIenabled)software)platform)strategy Focus)on)own)collaborative)software)platform)strategy
- 8. ! Domestic&Incumbents ! International&Incumbents ! Technology&Players ! Financial&Investors August&2016 8 Drivers&of&M&A&in&Industry&4.0 Strategic)M&A)transactions)can)be)seen)as)an)effective)way) to)accelerate)transformation)path)towards)Industry)4.0 Potential)Acquirers)(selected)Main)Strategic)Drivers Access&to&Technology)Assets)and& Product)/)IP)Portfolio Access&to&new)Industries)and)Markets Transformation of&Organization& through&Talent Consolidation – vertically&and& horizontally&– to&foster&own&ecosystem
- 9. August&2016 9 Industry&4.0Arelated&M&A&activity&in&DACH Source:&Lincoln&International Increasing)deal)activity)in)GermanIspeaking)Europe,)though) highly)fragmented)target)market)with)small)deal)sizes Based&on&44&Industry&4.0Arelated&M&A&transactions&in& DACH&(2011A Q1&2015)&activity&is&characterized&by: ! Majority)of)deals)are)domestic)driven&by& adding&Industry&4.0&competencies&in&context&of& “smart&factory” ! 75%)of)all)transactions)involved&target& companies&with&less)than)EUR)50m)revenue) which&reflects&both&early&phase&of&Industry&4.0& activity&and&high&fragmentation&of&relevant& technology&companies ! Increasing)trend)in&number&of&transactions& since&2013
- 10. August&2016 10 Conclusion&and&Outlook Most)players)need)to)embrace)Industry)4.0)more)comprehensively) in)order)to)exploit)its)opportunities)and)stay)competitive ! Industry&4.0&offers&an&enormous)growth)opportunity)for&both&domestic&incumbents&and&new& players&in&the&manufacturing&industry&through&its&greater&technologyAenabled&customer&focus. ! Along&the&technology&stack&new)competencies)are)required)(such&as&data&analytics)&in&order&to& compete&successfully&in&a&rapidly&changing&environment&driven&by&new&emerging&ecosystems&and& platforms. ! So&far,&mainly)incumbents)are)prepared)for&this&transformation&with&an&Industry&4.0&strategy& which&implementations&often&include&M&A)in)order)to)accelerate)their)technology)roadmap)and& to&get&the&right&talent&for&its&execution. ! Beyond&M&A&strategic)partnerships)across&industries&become&more&important&besides& cooperative)ventures)(including&own&corporate&venture&funds&in&certain&cases)&in&order&to&stay& competitive&through&earlyAon&identification&and&adaptation&of&new&technologies. ! Similar&to&the&development&in&the&Consumer&Internet,&but&at&a&slower&pace&due&to&the&complexity,& we&expect&certain&industryIleading)networks)to)evolve)first,&followed)by)vertical)applications) customized&to&specific&customer&groups.&Simultaneously,&innovations)in)enabling)technology) (based&on&the&analytics&and&connectivity&layer&of&the&stack,&such&as&decentralized&data)&will&mature. ! Overall,&for)potential)M&A)targets)domestic&players&will¬&only&compete&with&their&international& counterparts,&but&also&much&more&with&technology&players&besides&(specialized)&financial&investors& in&the&near&future.&This&increased)competition)will&most&likely&lead&to&higher&multiples&being&paid.