Written by: Jeremie Capron
Mergers and acquisitions have a history of providing unique investment return opportunities to stockholders of companies that are acquired. Once a company becomes an acquisition target, it’s almost inevitable that its stock price jumps, often by as much as 20, 50, or even 100%. While this is true in nearly every industry, M&As in the technologysector have proven particularly fruitful for investors with each new wave of innovation.
The rise of the Internet brought the largest-ever technology merger when AOL bought Time Warner in 2002. The personal computer “war” spurred HP to acquire Compaq and EDS. The desire to expand into mobile technologies drove Google to snap up Motorola Mobility and HP to jump on board with its purchase of Palm. Most recently, the desire for cloudand big data technologies has led to a long list of acquisitions by companies like Microsoft, Facebook, IBM, Oracle, and FICO. The next wave, of course, is Robotics, Automation and AI (“RAAI), and the buying frenzy is already in full swing.
This week offered another perfect example. On Tuesday, trading was halted in Rockwell Automation (ROK), a bellwether member of the ROBO Global Robotics & Automation Index, following rumors of an acquisition by Emerson Electric. Trading resumed after both companies confirmed two unsolicited bids in recent months, and Rockwell closed up 7% at over $200/share, adding more icing on the cake for investors who have already benefitted from the company’s more than 60% surge in the prior 12 months.
The takeover attempt is an industry milestone, largely because Rockwell isn’t just any robotics and automation company. It is the largest pure-play industrial automation company by market capitalization outside Japan. A clear technology and market leader with an enormous installed base of factory automation control systems around the world and best-in-class financial performance, Rockwell is a highly strategic asset in the eyes of many larger industrial and software companies. It’s also the cornerstone of a powerful consortium that includes Microsoft (for Cloud technologies), CISCO (for networking capabilities) and FANUC (for industrial robotics and artificial intelligence). These companies are working in concert to deliver futuristic “smart factories” based on open-standards—and create a significant threat to Siemens, the powerhouse that has been a key driver behind Germany’s Industrie4.0 initiative that tends to use proprietary, closed-systems as its core.
Of course, Rockwell isn’t the only target in the robotics, automation and AI acquisition game. In January, The Robot Report announced that more than 50 robotics companies were acquired in 2016 alone—for a total price tag of over $19B. Intel. Google. Honeywell. GE. Tesla. These big names and more are acquiring the companies who offer today’s must-have technologies in every area of robotics & automation. For investors who want in on the action, one wise play may be to gain exposure to robotics firms that are poised to be next up on the bidding block. The key is to focus on smaller players—not just market cap leaders—who offer cutting-edge technologies, making them ripe for acquisition.
To gain this exposure, it may make the most senseto steer away from market-cap-weighted indexes with concentrated portfolios of only the top 10 to 20companies in the sector. In contrast, a modified-equal-weighted index like the ROBO Global Robotics & Automation Index, which includes over 80 companies from around the world, is designed to provide the market-cap diversification that invites exposure to acquisition-ready companies. Since ROBO’s inception in 2013, nine members have been acquired, including four—MobilEye, KUKA AG, ArcamAB, and e2v Technologies—in the past 18 months.
Even as this shopping spree makes robotics & automation one of today’s most important growth opportunities, the momentum is already building for the next technology wave: Artificial Intelligence. While many AI companies remain private today, it’s only a matter of time before the IPOs take off and another acquisition cycle takes hold. That cycle has already begun with privately-held companies in the space. According to a recent report from CB Insights, more than 250 private companies using AI algorithms across different verticals have been acquired since 2012, and 37 of those acquisitions took place in Q1 of 2017 alone. It’s just the start.
The bid for Rockwell Automation is just one more harbinger of the desire by larger companies to buy their way into the Robotics, Automation, and Artificial Intelligence revolution.
And while some investors may worry that elevated valuations may be a barrier, it’s clear that companies who have the assets to acquiring robotics automation capabilities are looking at a now-or-never opportunity to position their portfolios for the next 10 years. Companieswho don’t invest in these key capabilities soon will no doubt pay a high price in the future—either because they’ll fall behind in the race toward excellence in RAAI, or because they’ll be forced to pay the going rate for access to the technologies they need to compete in an automated world.Investors who are poised to benefit from these robotics company acquisitions will be among the winners in the long game.
The ROBO Global® Robotics and Automation Index and the ROBO Global® Robotics and Automation UCITS Index (the “Indices”) are the property of ROBO who have contracted with Solactive AG to calculate and maintain the Indices. Past performance of an index is not a guarantee of future results. It is not intended that anything stated above should be construed as an offer or invitation to buy or sell any investment in any Investment Fund or other investment vehicle referred to in this website, or for potential investors to engage in any investment activity.
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