For well-established investment banks, arranging capital and managing ownership transitions is a mainstay of the business. Forward-thinking investment banks, however, look beyond established companies to emerging industries with companies that need the financial capability to grow either organically or through acquisition. The production of autonomous vehicles (“AV”) and their components represent one of these emerging industries. Fortunately, the financial markets are beginning to take note.
To date, much of the financing of AV industry participants has come from venture capital firms and AV industry participants have been increasingly taking advantage of this capital. In 2016, there were only 14 transactions involving AVs, according to data from Pitchbook. In 2017, that number increased to 57 transactions. This year, from January through May 31, 2018 there were already 35 transactions counted. With this increase in venture funding, increasing private equity interest isn’t likely to be far behind.
The industry is in need of financing. Infrastructure is obviously critical to the adoption of AV, and legislation permitting the use of AVs is a first step. Twenty-nine states have enacted legislation related to autonomous vehicles, and governors in 10 states have issued executive orders related to AVs, according to the National Conference of State Legislatures. Michigan and Florida have gone so far as to allow AVs on all roads in their states.
Is the technology at the point where it will spawn new companies to address the industry’s needs?
The Society of Automotive Engineers has identified six distinct levels of autonomous operation:
- No automation
- Driver assistance
- Partial automation
- Conditional automation
- High automation
- Full automation
The world is already at level 2, and level 3 is just around the corner. How soon we get to level 6 is anyone’s guess, but we can be sure that there will be many new companies developing and manufacturing the components necessary to get there. Financing those companies will be a requirement for growth.
Because so much innovation takes place inside smaller companies, these market participants will likely face consolidation and will need to do so to achieve the scale necessary to compete. Combinations – achieved through ownership transition – will also result in making AV components compatible with each other, establishing operational standards which will, in turn, spawn more technology and products from growing manufacturers.
Finance plays an important role in the growth of companies, especially those in emerging industries like AV. To take advantage of a fertile business environment, industry participants will need the capital to invest in their businesses and invest in the acquisition of other businesses. Venture capital, private equity, and the myriad of credit sources available to borrowers have demonstrated a growing interest in financing the component manufacturers in the AV industry. Forward-thinking investment banks offer the conduit to that financing.
About The Chicago Corporation
The Chicago Corporation provides corporate finance services for private companies with revenues between $20 and $300 million. Visit www.TheChicagoCorp.com, or contact Brooks Crankshaw at Brooks.Crankshaw@TheChicagoCorp.com.
Securities transactions conducted through TCC Securities, LLC, an affiliated company, registered Broker / Dealer and Member of FINRA / SIPC.