Samsung acquisition of Harman will enable its leap forward into connected cars market, says expert

Eike Fietz, a specialist in mergers and acquisitions in the technology and automotive sectors at Pinsent Masons, the law firm behind Out-Law.com, said the transaction offers significant potential benefits to Samsung.

"Technologies suitable for the connected and autonomous vehicles market are complex and it can take even the biggest technology companies a lot of time, money and resources to develop their own solutions," Fietz said. "It is not surprising that Samsung would be interested in fast-tracking its move into the market for connected cars technology by acquiring a business which has technology that complements its own. Harman has also already built relationships with automotive original equipment manufacturers, which should help shortcut Samsung's route to supply that market."

"While OEMs are eager to develop the core technologies for connected cars themselves, there are opportunities for commercial partnerships through acquisitions, collaboration or traditional supplier arrangements. We have already seen BMW, Daimler and Audi group together to acquire Nokia's Nokia Here mapping unit, and BMW also has a joint venture with SGL Group which is aimed at enabling the car manufacturer to utilise carbon technologies in electric vehicles," he said.

In a statement announcing its deal to buy Harman, which is subject to Harman shareholder and regulatory approvals, Samsung said it sees opportunities to successfully mix its strengths in mobile technology, distribution and consumer experience with Harman's technologies.

Harman supplies in-vehicle technology to car manufacturers, including in-car entertainment and audio systems, cybersecurity systems, over-the-air software updates and telematics. After the acquisition is completed, Harman will operate as a stand-alone subsidiary to Samsung and continue to be led by Dinesh Paliwal, Harman's existing chairman, president and chief executive, Samsung said. The companies expect the transaction to complete in mid-2017.

Samsung said that it is "a strategic priority" for the company to establish "a significant presence in the large and rapidly growing market for connected technologies, particularly automotive electronics". That market will be worth more than $100 billion by 2025, Samsung has estimated.

"The vehicle of tomorrow will be transformed by smart technology and connectivity in the same way that simple feature phones have become sophisticated smart devices over the past decade,” said Young Sohn, president and chief strategy officer of Samsung Electronics. "We see substantial long-term growth opportunities in the auto technology market as demand for Samsung’s specialised electronic components and solutions continues to grow." 

"Working together, we are confident that Harman can become a new kind of tier 1 provider to the OEMs by delivering end-to-end solutions across the connected ecosystem," he said.

Nicole Livesey, expert in advanced manufacturing and M&A at Pinsent Masons, said Samsung's announcement provides another example of a business not traditionally associated with the automotive market now moving into the sector as a result of the opportunities and potential growth of connected and autonomous cars.

Livesey said: "OEMs are renowned developers of safe and reliable vehicles and are looking to build on their strong brands to exploit the opportunities presented by connected and autonomous vehicles. Some are even looking at establishing their own dedicated units to ensure they can take advantage of new business models such as mobility-as-a-service. However, there is a recognition within the OEM community that technology companies might be better placed to deliver new technology and software beyond the core vehicle technologies they offer to deliver an improved in-car experience."

"There is therefore an opportunity for technology companies to work in closer partnership with OEMs to deliver the additional connectivity and functionality they desire, and to respond to the demands of consumers. This might fuel collaborative working models, including joint ventures, or see technology providers bolster their propositions – as Samsung has done – via acquisitions, to offer a more rounded set of products and services within traditional supplier agreements," she said.

In the Samsung statement, Dinesh Paliwal of Harman said "partnerships and scale are essential to winning over the long term in automotive as demand for robust connected car and autonomous driving solutions increases at a rapid pace".

Earlier this year Paliwal said Harman is in the hardware business in order to sell software. In following this approach, Harman recently strengthened its offerings of cybersecurity solutions for cars and over-the-air software updates by making three acquisitions. It bought TowerSec, specialist in IT-security for cars, Symphony Teleca, which provides cloud solutions for over-the-air software updates, and Red Bend, software provider for over-the-air updates. Red Bend serves, amongst others, Daimler.

While most OEMs use over-the-air technology for infotainment and navigation systems, Tesla deploys over-the-air updates for its Model S and Model X vehicles for their entire autonomous driving systems.