Why Tech Will Buy an Automaker

by Michael Keane

As the struggle and innovations continue to develop in the driverless car industry, the idea that a tech company will buy an automaker is becoming more and more real.  A few things come to mind in forming this idea. The first one that comes to mind is company valuation and cash balances. Many tech companies that are involved in the automotive space are sitting on a lot of cash.  The second area that indicates the probability of this idea is that there are already partnerships and smaller deals between the tech companies and the automotive companies. Another area that brings this idea to fruition is finding the answer to the question of “What does the future look like in the space and who is best capable to lead this move into the future.

If you look at the tech sector and the automotive sector in terms of valuation, you will see that it is entirely possible for a deal to happen. The following chart gives a quick snapshot of valuations of different tech companies involved in the auto space as well as a few automakers. You can see the cash balances and valuations of the tech companies actually put them in a favorable spot to make a bid. Tesla’s market cap and Ford’s is now basically equal.

Company	Valuation	Cash on Hand	Amount Invested in Auto
Alphabet	$600 Billion	$86 Billion	New Company named Waymo
Intel	$167 Billion	$5.5 Billion	Just made a bid for Mobileye
Apple	$753 Billion	$21 Billion	Undisclosed Amount in Software
Tesla	$45 Billion	$3.5 Billion	Full Electric Car Company
Ford	$47 Billion	$16 Billion	Auto Company
Fiat Chrysler	$21 Billion	$18 Billion	Auto Company
GM	$51 Billion	$14.5 Billion	Auto Company

Large partnerships are starting to abound between the two industries. Recently, Intel made a bid for Mobileye. Ford has been in partnerships with Alphabet. GM purchased Cruise Automation for more than $1 Billion dollars last year and has a partnership with Lyft. Mercedes Benz recently reached an agreement with Uber with regards to a driverless car. With all this smoke around, the likelihood of a purchase continues to get stronger and stronger.  

While in the past, someone might not associate tech with cars, today you just can’t get away from the connection. Driverless eco friendly vehicles are the future. Big companies are putting large fortunes in play to make this happens. There will be some hiccups and disasters for sure. But don’t be surprised if you wake up one morning, pick up your phone (instead of the tv), and find that a car company has been purchased by a tech company.

**Disclosure - KDK Fund, a client of KeaneVCC, owns shares of Ford. KDK Options, another client of KeaneVCC, owns an April spread options trade on Microsoft. **

Retail and Car Land Opportunity Going On Now

by Michael Keane 1/5/2017

Large Scale Real Estate Opportunity

There is a shift in consumer behavior that is providing for one of the largest real estate opportunities in a long time. There are two industries that currently take up a lot of real estate. Because of the behavioral shift in consumer behavior, these industries are seeing more and more dependance on line and less and less dependence with the on site areas of these businesses. Both are experiencing a tipping point right now. The industries are retail stores and car lots.  This movement should be seen as a great opportunity for developers, business executives, and urban planners.

Just today, Sears announced that they are closing an additional stores (Bloomberg link here). Macy’s also announced today that earnings are going lower. This is not a blip anymore. Consumers have spoken. They are needing stores less and less. This doesn’t mean consumers need the products any less and therefore is not a story on the companies themselves. But their need for paying for the massive real estate that they control is becoming less and less.

Car dealerships are another area that land usage will likely decrease as consumer behavior continues to be leaning more and more to online shopping. This is something that carmakers will ultimately enjoy as they can remove their costs from owning/leasing the land needed to sell these vehicles. Granted, some if not most of the cost is down to the dealership owner, but removing that cost could drive costs down for them without necessarily driving down revenue. Who knows, maybe buying a car will be similar to buying insurance.  

This has to be looked on as a major opportunity. One way Google was able to get to scale was to use the downturn in 1999-2000 and find cheap space for its servers. Are there any companies out there now looking for large scale space? Municipalities should be looking this as an opportunity to use the land for new schools, parks, and other public uses. Residential real estate will always be an option as long as jobs are present in the area. Oh, and what about that start up company that is being created new this space? When 1871 (link here) was created, it received a fantastic opportunity to use space in Chicago’s Merchandise Mart. Now, the building is in the process of being transformed into a tech juggernaut. Health care is also an area that should look to capitalize on this space becoming available. Research facilities should be able to be quickly set up.

There are some changes happening within the retail and vehicle sectors that will almost certainly be providing for the sale of buildings and land. Will there be another Google, 1871, or local developer out there ready to take the opportunity and grow their business? We certainly hope so.

If you or someone you know finds this article helpful, reply back to keanevcc@gmail.com and let us know how. We are always looking to promote and develop businesses.

Massive Influence of Wikinomics Series

by Michael Keane

Recently, I revisited Macrowikinomics, by Dan Tascott and Anthony Williams. This book was written in 2010, as a follow up to the successful 2006 book Wikinomics. They speak about how to get the world rolling again after the crash using massive upheaval techniques in specific areas including Finance, Industrialization Processes, Education, Healthcare, Media and Communication, and the public's involvement and manipulation of government. I originally picked up the book years ago as notes were given by many important heads of business and government including Mark Parker (Nike), Eric Schmidt (Google), Noel Tichy (University of Michigan), Klaus Schwab (World Economic Forum), and others. With a recent revisit to the book and think back through the development of business processes, it seems that a lot of people took this book to heart. There is massive development in almost all areas covered in this book either by existing companies/organizations at the time, or by newly created businesses/organizations. The one element that seems to be evident in most of the improvement is that there is a high level of collaboration (vertical or horizontal) within each space.

Is there something in your business that corresponds with this collaboration thought pattern. Would using technology and collaboration have a disruption within your industry in some way. Would a small change create the possibility for an even larger change?

I fully recommend MacroWikinomics. There is a new book on blockchain that will be on the list of books to check out. Bankers beware. You are next in the line of disruptors.

This is an opinion article. The opinions were fully unsolicited. Please do your own due diligence before acting on this article.

Driverless Cars (Post 3 of series)

by Michael Keane

This post will be covering the effects of driverless cars on the oil, insurance, and government taxing authorities. With Google already logging in over 1 million road miles, and the successes that have been created, these vehicles are not far from hitting the consumer markets. Problems show that it will eliminate demand for oil and insurance industries, while at the same time removing a significant source of revenue from tickets and crashes. Possible solutions include finding new uses and new sources of revenue. Links to the previous 2 articles (general post 1 here, and more focused article for post 2 here).

Most driverless cars will be almost certainly electric vehicles. This is not a good sign for the oil companies. If car companies are going to invest in the technology to have a driverless car, electric engines will be a no brainer.

Insurance companies are almost certain to lose massive revenue from driverless cars. The continually mounting data is showing that driverless cars are far safer than cars driven by human beings. That will hit premiums in a big way. This one simple savings point could drive more people to driverless cars in the same way that gas prices drive consumers to electric vehicles. Knowing the trends and cycles as Insurance companies create the thought pattern that this situation is being worked on and that a plan to replace the premium revenue with another stream is likely.

Not unlike the insurance companies are local and state governments. This is because with the same data, extrapolating the idea that there will be less tickets from speeding and accidents is almost a no brainer. But unlike insurance companies, it can be fairly certain that governments are not working on this idea. Maybe this article will get them to do so. They should be looking at their revenue models (because that is what ticket revenue really is) and adapt it to future items and personal behaviors in order to replace the loss that not having speeding ticket and accident ticket revenues.  A possibility is to update roads with assistant type technology for the vehicles and charge the vehicle owners for that particular service.

Driverless cars will create an opportunity for consumers to possibly lessen the costs of insurance, energy, and tickets.  These industries would be very wise to have plans on replacing the current revenue with new plans in the pipeline.

Google Buys Nest....Must Have Read Our Previous Post :)

It was announced today that Google has purchased Nest, the thermostat and smoke detector company for 3.2 Billion dollars. The Bloomberg story can be read here. The reason for the purchase was to expand its device inventory.

It is a very welcome sign to see companies like Google use its resources to purchase companies like Nest. The tech know how that Tony and his team have is second to none. It makes one wonder what the conversation was like between Google and Tony. What is it that Google have in mind that got Tony to sell is intriguing. Being that Tony has worked with tech heavyweights before will make his group less afraid of the purchase. One other neat aspect of mergers of this size and capability is that there will be some employees who will step out on their own and have the knowledge base of working with Tony and Google with them.

On November 2, 2013, KVCC had spotlighted the CEO of Nest, Tony Fadell, as its Person of The Week. That post can be read here.