Daily Management Review

Delphi strengthens connected-car equipment segment, to buy HellermannTyton for $1.7 billion


Trend of Auto Makers to Invest in Higher-Value Component Market

Delphi strengthens connected-car equipment segment, to buy HellermannTyton for $1.7 billion
To capitalize on the growth in the connected-car market, U.S.-listed auto parts supplier Delphi Automotive is on the verge of buying out British cable equipment maker HellermannTyton Group . The deal is said to cost Dolphi Automotive about 1.1 billion pounds ($1.7 billion).

In recent times as demand for internet connected cars have grown, there has been a consequent demand of related electrical connectors and cables. There is demand for cars to be linked to the internet via phones or tablets.

HellermannTyton manufactures car-connectivity products for fastening, fixing, and protecting cables.

"With consumers now demanding more connectivity in their vehicles, electrical architecture is the enabler to that added vehicle content," said Delphi Chief Executive, Kevin Clark.

This acquisition signals that auto makers are ready to expand beyond the core car market and the car accessories market. The higher-value components such as electronics and software are now on the radar of auto makers.

Two recent acquisitions of this nature have confirmed the trend. software company Elektrobit Automotive was acquired by rival auto supplier Continental AG COGN.DE  in May this year. In September 2014, U.S.-based TRW Automotive Holdings Corp was virtually pounced upon by Germany's ZF Friedrichshafen. This deal created a combination that is composed of one of the largest makers of automatic gearboxes and a maker of automatic safety products.

This new and lucrative segment of the auto market - vehicle connectivity and methods to increase fuel efficiency, has significantly high-margin and high-growth. This section has seen growth as governments in many countries are aggressively implementing new safety and anti-pollution rules. This has forced auto manufacturers to equip cars with technology so that they become more intelligent.

This meant that engine management and gear shifting systems were made more fuel efficient so that vehicles can better perform semi-automated functions like accident avoidance and cruise control.
Apart from a 44 percent premium to its closing price on the London Stock Exchange on Wednesday (29 July), Delphi will pay 480 pence in cash for each HellermannTyton share.

Following the announcement, the shares of HellermannTyton, which became public only a couple of years ago in 2013, saw a very strong 42 percent growth and ended trading at at 471 pence at 1001 GMT on Thursday. This mad the company the top FTSE 250 FTMC gainer and was the stock that traders went after most aggressively.

Apart from the major deal with HellermannTyton, there were smaller investments made by Delphi Automotive that were announced on 30 July. The company had mad eth investment in the car safety and efficiency related technology. Software company Ottomatika was bought over by the company and a strategic investment was made in 3D LiDAR sensing company, Quanergy.

Software developer Tula Technology that makes cost-efficient, fuel economy gains in cylinder deactivation technology was also the destination for a minor investment of the company.
Earlier this year in April, Delphi Chief Executive, Kevin Clark had said that Delphi might spend $1 billion to $3 billion in 2015 to expend in a large acquisition that would be related to its traditional "hardware" business as well as make smaller investments in auto safety and efficiency enhancement software.