China's Joyson Electronic in self-drive swoop

Ningbo Joyson Electronic is looking to acquire US and German autonomous driving know-how by buying two separate businesses for more than $1.1b.
Ningbo Joyson Electronic said on Friday that it has agreed to buy two overseas firms with autonomous driving know-how for more than $1.1 billion, illustrating the Chinese car industry's determination to keep pace with the latest technological developments. 
The Shanghai-listed automotive electronics supplier said it will acquire US-based airbag and seat belt maker Key Safety Systems (KSS) for $920 million and the car navigation division of TechniSat Digital GmbH, a German manufacturer of direct broadcast satellite receivers, for €180 million ($205 million), according to its filing with the local stock exchange. Both takeovers will be paid in cash and have been approved by the company’s board.

Set up in 2004 by Wang Jianfeng, Joyson Electronic has quickly developed into one of China’s largest auto component suppliers and has a rafter of global marquee clients, including car makers Volkswagen, General Motors, and Mercedes-Benz.

The company, which is little-known to foreigners, has now set its sights on cutting-edge self-driving and smart-car technology and aims to become a top supplier in these fields.

“Autonomous driving will fundamentally change the automobile industry or even the transportation industry,” the company said in the filing, adding that it will take 15 years for the technology to be used widely. It also estimated that the average annual compound growth rate for the self-driving component of its business would be up to 42% over the next decade.

The takeovers highlights how auto companies in China, which boasts the world's biggest car market, is scanning for overseas deals that might help them gain high-tech expertise. Dealogic data shows Chinese companies spent nearly $10 billion on 21 foreign auto and truck deals last year, up from $2.1 billion on 19 deals a year earlier.

According to the semi-official China Automobile Association, annual passenger car sales in China hit a record high of 21.1 million in 2015, a 7.3% gain on the previous year.

Road safety

For Joyson Electronic, it is also not the first time it has snapped up foreign auto assets. The company bought a near-60% stake in Preh GmbH for $183 million in 2012 and acquired Quin GmbH for $113 million in 2015, according to Dealogic. Both are German auto suppliers.

But this time Joyson Electronic seems to have a different agenda with big auto makers such as Volvo actively being encouraged by Beijing to deploy self-driving cars on China’s public roads as a way to improve road safety.

The American firm KSS, which has traditionally focused on safety-related components such as air bags, inflators, and seat belts, is the world’s fourth-biggest auto safety supplier with a global market share of 7%, after Sweden’s Autoliv (37%), Japan’s Takata (20%), and US firm TRW Automotive, according to Chinese brokerage Sinolink Securities. It is now tapping autonomous-driving innovations, including collision avoidance technology and autonomous parking functions.

The takeover of TechniSat Digital’s auto navigation division, meanwhile, would help Joyson Electronic to develop information and navigation systems as well as car connectivity to help maintain safe distances and avoid accidents.

“Acquiring KSS can help the company develop active safety [system] while acquiring TS [division] can let it gain key software of self-driving, which could help it transform from a product supplier to a platform provider driven by technology,” Liu Yang, an equity analyst at Everbright Securities, said in a note in late March after Joyson Electronic said it intended to acquire both companies.

Joyson Electronic said in mid February that it planned to raise up to Rmb8.6 billion ($1.3 billion) in a private placement of shares to fund overseas acquisitions. It added in Friday’s filing that it is seeking loans totaling Rmb4.5 billion from big state-owned Chinese banks, including Industrial and Commercial Bank of China and Agricultural Bank of China. 

Based in the prosperous eastern coastal city of Ningbo, Joyson Electronic employs more than 7,000 people and runs 20 production and distribution bases in China, Germany, the US, Mexico, and Poland. It reported revenues of Rmb8.08 billion and a net profit of Rmb400 million last year.

Both deals are subject to regulatory approvals. The KSS acquisition is expected to completed before June-end.

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