What is behind the biggest exit ever in Israel high tech? Why did Intel choose Mobileye, and how did the amount of the deal reach $15 billion?
Israeli company Mobileye is one of the companies specializing in autonomous vehicles, and is regarded as one of the best and most advanced in the world. Mobileye realized the potential in the autonomous auto sector at an early stage, and managed to establish itself as a technology leader in this global industry. The announcement that the company will be acquired in the largest deal ever in Israeli high tech therefore came as a complete surprise to no one, although many wondered why Intel was the one to acquire Mobileye, and how the $15 billion price for the deal had been set.
As we saw in our September 2016 analysis of Mobileye, as an independent company, Mobileye always has difficulty in competing with global companies in the autonomous vehicles industry. Companies such as Google with the Waymo project and Tesla, for example, are spending huge amounts on research and development that far exceed the money available to Mobileye, while at the same time acquiring startups working in the sector. These investments are likely to some day close the technological gap between the global companies and the technology developed by Mobileye since 1999.
Why did Intel acquire Mobileye?
After its cooperation with Tesla came to an end, Mobileye began cooperating in June 2016 with Intel and the BMW group for the purpose of developing advanced technology that would make it possible to drive semi-autonomous, or even fully autonomous, vehicles. The technology can also be offered to other players in the auto market. Mobileye began another cooperative effort with Delphi for the purpose of creating a kit that would turn “ordinary” vehicles into autonomous vehicles, and Intel has also joined this venture in recent months. Another cooperative venture, with GM this time, sought to enhance mapping and monitoring technologies with various elements in order to attain a better grasp of the surroundings of the vehicle and the driver. Mobileye also signed many contracts with various auto manufacturers from all over the world.
Intel began its cooperation with Mobileye in the knowledge that the latter was a pioneering company in its field, highly esteemed in the industry and very experienced, with a large customer base and an extensive store of information collected in the course of the company’s many years of doing business, in addition to Mobileye’s familiarity with many auto makers with which it had worked over the years. Becoming acquainted with each other and working together moved the two companies towards the acquisition.
Why did Intel enter the autonomous car sector?
Intel is a veteran technological giant that employs tens of thousands of engineers. The company operates production lines and facilities all over the world. Its products (and processors) are found in most of the world’s households.
Here, the American giant has made a strategic and courageous acquisition that indicates a change in the company’s future thinking. After squandering the opportunity to lead the cellular telephone processors market, the acquisition of Mobileye raises Intel from a secondary player in the autonomous vehicles market to one of the most prominent players in the autonomous vehicle industry. According to Intel, the potential market in 2030 vehicle market with all of its elements is an estimated $70 billion.
Intel realizes that the technology developed by Mobileye can be a substantial springboard for the company, and that such a combination of forces will take it a great many steps forward. Together, the companies can integrate and bolster their auto research and development departments, and enhance the performance of the systems by customizing the processors for Mobileye’s systems. In addition, Intel can later include Mobileye in other areas in which it is active, in which it has yet to benefit from everything that computer vision has to offer, including IoT, drones, and more.
How did they calculate $15 billion?
Mobileye’s market cap is $10.5 billion. Intel will pay $15.3 billion for the company (the real price is $14.7 billion, after deducting Mobileye’s store of cash). It appears that the reason for the added premium that Intel is paying on Mobileye’s market cap is that following the cooperation between the companies, Intel is exposed to internal strategies. It is aware of how Mobileye sees the market, and believes in the path that the company has chosen. Intel regards Mobileye as a technology company, not a consumer company. Intel is learning from its past mistakes (missing out on the cellular market), and in this acquisition, it is getting in ahead of the market. Intel realizes that Mobileye has commercial ties with many auto manufacturers, which Intel can use exploit for its needs. An aggregate calculation of these factors led Intel to assess Mobileye’s value as 46% higher than its current market value.
What about the Israeli perspective?
It is true that once the deal is approved by all the parties, Mobileye will no longer be an Israeli company. Israel, however, still plays a significant role in Intel’s strategy. A considerable proportion of the company’s weight is right here in Israel, and in the company’s business that will remain here. Intel’s developments in Israel, combined with the consolidation of its augmented status in the autonomous vehicle industry as a large American corporation with an Israeli base, maintain Israel’s status as a technological leader, although not necessarily as the startup nation.
From Mobileye’s perspective, the company’s acquisition by Intel is a step that closes the gap between it and the global players in the autonomous car industry. Mobileye has been successful in both its technology and its management, while avoiding the trap that ensnared companies like Nokia and BlackBerry, which relied too much on their technology, and lost their leading positions as a result. As a company with the best software products, becoming part of Intel, a hardware company, appears to be the most correct thing for Mobileye to do.