The Acquirer Gets Acquired

Earlier this month, Samsung stunned the industry by announcing an $8 billion acquisition of Harman International. Samsung, not historically known for being an M&A juggernaut, shook up the consumer electronics landscape with this massive opening salvo. Congratulations to Dinesh Paliwal, Harman’s CEO who joined in 2007, and led the company’s impressive turnaround behind an aggressive acquisition strategy and commitment to leadership in the connected car and professional and home audio markets.  

As the dust settles from the announcement, here is our quick take on the deal:

Will Samsung be more focused on M&A now?

We think so. In the past, Samsung has historically been a “build it internally” organization with a fairly limited M&A history. However, with its acquisition of SmartThings in 2014 and more recent acquisitions of Viv, Dacor Appliances and now Harman in 2016, Samsung appears to be changing its stripes. Why? We believe pressure from Apple, Google and its own missteps with the Note 7 phone have caused Samsung to reevaluate its strategies. As the pace of change accelerates in the industry, the need for rapid innovation and access to complementary brands and new markets is particularly critical. Companies like Samsung cannot compete effectively on all fronts without M&A. 

Is the Harman deal simply about the Connected Car?

It certainly seems like a primary driver of the acquisition. Harman has continually made huge bets on the sector with the acquisitions of connected car software companies Symphony Teleca and TowerSec as well as Bang & Olufsen’s automotive business. Harman’s technological expertise and longstanding relationships with the major automakers will prove valuable for Samsung as it navigates this rapidly-emerging market. However, outside of the Connected Car division, Harman boasts some true crown jewels, including its highly profitable Professional Solutions division as well as an attractive portfolio of beloved audio brands, including JBL, that offer vast tie-in potential for Samsung. 

What does this mean for Harman, the “serial acquirer”? 

For years, Harman has been gobbling up brands and technology companies at a rapid pace, becoming the buyer of choice for many companies in the consumer and professional electronics world. Will Samsung allow Harman to continue its strategy of M&A, especially in its Professional Solutions segment which appears to be the one segment that is off-scope for Samsung? With new leadership and strategies sent from Korea, it seems highly likely that Harman’s historical M&A pace won’t be sustained. However, industry insiders believe there is a decent chance Samsung will spin off the roughly $1 billion revenue Professional Solutions division to focus on the Connected Car and Consumer Electronics markets. Expect a feeding frenzy from private equity groups if this were to occur. In the meantime, any slowdown in Harman’s M&A efforts will present opportunities for other buyers seeking to grow through acquisitions.

We see exciting times ahead as vast markets develop like the Connected Car and what this means for M&A.