![Page 1: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/1.jpg)
Legal Executive Institute Automotive Conference
October 4, 2018
![Page 2: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/2.jpg)
Changing State of Automotive M&A
Sources:
“Rethinking Transportation 2020-2023” RethinkX
Thomson Reuters, Bloomberg, Capital IQ and other publicly available sources
Manufacturers, equity/venture funds and technology companies continue to invest heavily in automotive technology, bringing with it
changes to business models and product offerings. Investments are being made in ride sharing/mobility, autonomous vehicles, online
vehicle dealerships/trading platforms and other technological vehicle features.
Global Electric Vehicle Fleet & Demand for Battery Capacity
EV
s in
Glo
ba
l F
lee
t (i
n m
illio
ns)
Gig
aw
att
-ho
urs
Dem
an
d (
GW
h)
4 6 9 13 18 2532
4050
6073
87
105
127
0
200
400
600
800
1000
0
20
40
60
80
100
120
140
2017 2019P 2021P 2023P 2025P 2027P 2029P
Global Fleet of Electric Vehicles gigawatt-hours (GWh)
0
1
2
3
4
5
6
7
2017 2019P 2021P 2023P 2025P 2027P 2029P
Individual Ownership Miles Ride Sharing Miles
Speed of Ride Sharing Adoption in the U.S.
Tri
llio
ns o
f P
asse
ng
er
Mile
s (
US
)
53%41%
6% Non-tech acquiring tech
Tech acquiring tech
Tech acquiring non-tech
42%
25%
11%
8%
3%
11%
Alternative powertrains
Connected car
Autonomous vehicles
Online dealerships/trading
Ride sharing
Other
2017 Auto-Tech Deal Volume 2017 Auto-Tech Deal Volume by Sub-Category
![Page 3: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/3.jpg)
The Growth of Auto-Tech
2 10
5 8
98
45
18
65
34
61
50
30
9
11
8
15
0
1,2
00
34
4
78
5
24
2
19
7
5,0
00
Q12014
Q12015
Q12016
Q12017
Q12018
Private Investment in Connected and
Autonomous Vehicle Companies
Auto-Tech Key M&A Figures
• 44 – Transactions in 1H-2018
• 15.2x – Median EV / EBITDA
• 3.0x – Median EV / Revenue
• 191 – Active Acquirers in Past 30 Months
(in $mils)
Source: Thomson Reuters, Bloomberg, Capital IQ and other publicly available sources
![Page 4: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/4.jpg)
Strategic Investment / Corporate Venture Capital
▪Strategic investors are increasingly active in early stage venture investing opportunities
−75 of the Fortune 100 are active in corporate venturing
−41 have a dedicated corporate venture capital (“CVC”) team
▪ From 2011 to 2016, the number of CVC funds has tripled to 965
▪CVCs were involved in 25%+ of all global deals to VC-backed companies in FY17
▪ From 2010 – 2017, Corporates have been active across various industries
−GE has made 202 investments, 220 for Comcast Ventures, 117 for J & J, 60 for BP Ventures and 58 for Unilever Ventures
−Other CVC making at least 20 early stage investments include American Express, General Motors, Monsanto, Shell and Time Warner
Sources:
Forbes: “Corporate VC is on the Rise: Here’s What to Know”, February 14, 2017, Teddy Himler (https://www.forbes.com/sites/valleyvoices/2017/02/14/corporate-vc-on-the-rise/#6a223528bbf2)
PwC / CB Insights MoneyTree Report Q4 2017
Pitchbook The Pulse of Private Equity. Is Corporate VC hurting PE? March 23, 2018. https://pitchbook.com/news/articles/is-corporate-vc-hurting-pe
![Page 5: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/5.jpg)
Corporate Venture Capital Market at a Glance - 2017
https://medium.com/inv-global/corporate-venture-investment-hits-a-record-37-billion-in-2017-2837533b8b33
![Page 6: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/6.jpg)
Auto Sector - Corporate Venture Capital Market at a Glance
▪ The Automotive Sector is at the center of much of this strategic investment. Leading corporate venture funds include:
• General Motors (GM Ventures)
• BMW (i Ventures)
• Toyota (Toyota AI Ventures)
• Renault-Nissan-Mitsubishi Joint Venture
– Volvo Car Group, Daimler AG have teamed up with Uber
– Volkswagen, Hyundai Motor have teamed up with Aurora
▪ The industry has seen sizeable rounds, for early stage companies including, for instance:
– ChargePoint, a provider of electric vehicle charging stations;
– StoreDot, a battery developer and
– Momentum.ai, an autonomous-driving startupSource:
Fortune: “Renault-Nissan-Mitsubishi Wants to Invest $1 Billion in Auto Tech Startup” January 10, 2018, Bloomberg (http://fortune.com/2018/01/10/renault-nissan-mitsubishi-vc-fund-alliance-ventures-auto-tech-startups/)
![Page 7: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/7.jpg)
Auto Sector - Corporate Venture Capital Market at a Glance
https://techcrunch.com/2017/09/23/automakers-accelerate-their-interest-in-startups/
![Page 8: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/8.jpg)
Corporate Venture Capital vs. “Traditional” Venture Capital
CVC Advantages
▪ Marketing / R&D Cooperation
▪ Built-in Customer / Strategic Partner
▪ Built-in Distribution Channel
▪ More patient with capital / exit strategy
▪ More passive role in management
CVC Disadvantages
▪ Perceived by potential targets as:
– Slower to make decisions
– Less educated in VC market, requiring more “hand-holding”
– More focused on own strategic objectives (and therefore less focused on target founders’ vision)
![Page 9: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/9.jpg)
Legal Implications – Understanding Next Steps
▪ The Strategic Rationale – Why Does this Investment Make Sense?– The Target Strategy
– The CVC Strategy
– The Financial Model
– The Long Term Business Plan
• Structuring – How will we execute? – Traditional M&A
– Joint Ventures and Strategic Relationships
– Seed Rounds - Direct Investment, Incubators and Accelerators
– Early Stage (Series A, B, C & D)
– Suite of Rights at Each Stage – What matters
▪ Does the proposed structure support the overall business goals?
▪ Legal Terms– Due Diligence (M&A or VC)
– Suite of Investment Documents
– Key Investor Protections
– Strategic Relationship Documents
![Page 10: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/10.jpg)
Illustrative Example: ADAS and V2V Connectivity
Multiple Levels of Integration
Hardware
• Processor
• Sensors (LIDAR)
• Heads-Up Display (HUD)
Software
• Control
• Apps
• Artificial intelligence
System Integration
• CAN
• Post-Installation Updates
![Page 11: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/11.jpg)
Common IP Issues for ADAS and Other Integrated Products
Competitive Landscape Disruption
IP Ownership from Joint
Collaboration
Obligation to Defend and Indemnify
Patent Enforcement Entities Levy
Tolls
IP Protection
Mix
![Page 12: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/12.jpg)
Competitive Landscape Disruption: Each Has Own Vision and Experience in IP
Entirely New
Players
Traditional Auto
Players
Large Tech/Small
Tech
Common IP Issues for ADAS/Other Integrated Products – Landscape
![Page 13: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/13.jpg)
IP Ownership and Right to Use
• Freedom to Use Technology• With other customers?
• Later Improvements by Collaborators• Freedom to use?
• Retaining Background IP• Share what you bring to the table?
• Conditions for enforcement• Who needs to be involved?
Common IP Issues for ADAS/Other Integrated Products – IP Ownership
![Page 14: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/14.jpg)
What is CFIUS?
▪ The Committee on Foreign Investment in the United States (“CFIUS”) conducts national security reviews of foreign investments.
– Chaired by the U.S. Treasury Department, CFIUS comprises key federal agencies with international trade and national security functions.
![Page 15: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/15.jpg)
Why does CFIUS matter?
▪CFIUS can block or unwind cross-border mergers and acquisitions that threaten U.S. national security.
– “Covered Transactions” can include acquisitions, investments, mergers, and even some joint ventures.
▪ Foreign investments in a U.S.-incorporated entities.
▪ Foreign investments in foreign-incorporated entities with subsidiaries, operations, or assets located within the United States.
– “Covered Transactions” can also reach U.S. entities that have foreign ownership.
▪ Can include ownership by foreign entities (including Limited Partners) with indirect and/or passive ownership as small as 7 percent.
– CFIUS does not review U.S. investments in domestic or foreign companies.
▪ These “outbound” investments by U.S. companies may trigger other international trade and national security issues. (FCPA, OFAC, Export Controls, AML, etc.)
![Page 16: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/16.jpg)
When does CFIUS apply?
Buyer-Side Characteristics
▪ Investor Nationality: China is the top CFIUS enforcement priority, followed by Russia, India, and countries in the Greater Middle East.
▪ Government Ownership: Transactions involving Foreign Governments, State-Owned Enterprises, or Sovereign Wealth Funds attract greater scrutiny.
Seller-Side Characteristics
▪ Security Clearances: Does the target have security clearances issued by the Defense Security Service (“DSS”) or other U.S. Government agencies?
▪ Defense Activities: Does the target work with defense-related activities controlled by the International Traffic in Arms Regulations (“ITAR”)?
▪ Export Controls: Does the target make products, software, technology, or technical data controlled by the Export Administration Regulations (“EAR”)?
▪ U.S. Government Contracts: Does the target have contracts, grants, or other commercial agreements with U.S. Government agencies?
▪ Critical Infrastructure: Does the target operate in the energy, telecommunications, transportation, or other sectors critical to U.S. Homeland Security?
![Page 17: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/17.jpg)
How does FIRMMA change the CFIUS process?
Substantive Changes
▪ Critical Infrastructure: Memorializes authorities over energy, communications, and other infrastructure that CFIUS was already exercising.
▪ Personal Privacy: Allows CFIUS to reach transactions involving sensitive personal information (e.g., financial, insurance, healthcare data, etc.).
▪ Real Estate: Requires CFIUS notices for certain real estate transactions with “close proximity” to U.S. Government facilities.
▪ Sensitive Technology: Strengthens review of technology transfers through joint ventures and other arrangements.
Procedural Changes
▪ More Authority: Strengthens CFIUS’s ability to “self-initiate” investigations into cross-border mergers and acquisitions.
▪ Less Discretion: Mandates “Declarations” for transactions where foreign governments or state-owned enterprises have a “substantial interest.”
▪ Higher Scrutiny: Requires parties to disclose side agreements and other detailed information regarding “non-controlling, non-passive” parties.
▪ Longer Proceedings: Increases the mandatory 30-day review to 45 days, and allows CFIUS to extend to the optional 45-day investigation to 60 days.
![Page 18: October 4, 2018 Legal Executive Institute Automotive ...€¦ · The Growth of Auto-Tech 2 105 898 45 18 65 34 61 50 309 118 150 344 785 242 197 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1](https://reader033.vdocument.in/reader033/viewer/2022050120/5f5007fac442e75a68290c23/html5/thumbnails/18.jpg)
Conclusions
▪Greater scrutiny demands a more proactive approach.
– Evaluating potential CFIUS requirements should become a routine part of the cross-border merger and acquisition process.
– Longer CFIUS review periods can impact deal timing. Addressing these issues up front can save time and cost while mitigating risk.
▪Develop transaction-specific strategies.
– CFIUS cases are transaction-specific, not country-specific. Evaluate each transaction in its own right before deciding whether a CFIUS notice is appropriate.
▪CFIUS is an advocacy process, not a regulatory filing.
– CFIUS cases are major undertakings that often involve direct advocacy with several government agencies. Plan ahead, get experienced help, and budget accordingly.