Samsung Snags Auto Parts Supplier Harman For $8B

In what will be its largest acquisition to date, South Korean electronics giant Samsung has announced it will buy U.S. auto parts supplier Harman International Industries Inc. for $8 billion in cash.

The big buy of the Connecticut-based firm instantly vaults Samsung into the world of automotive technology in a big way. It also redraws the global automotive supply chain some and signals that the race is on to control the car.

Harman’s entry into the market — 63 years ago — was as an audio pioneer, though in recent years that has expanded under Dinesh Paliwal into a broader-based supplier relationship. The firm has signed deals with General Motors Co. and Fiat Chrysler Automobiles NV and is currently working off an order backlog of $24 billion. That backlog literally triples the firm’s annual revenue. Beyond the parts, Harman has also moved into software development and components for connected cars. Those moves have been made through an aggressive acquisitions push — last year Harman shelled out $780 million for Symphony Teleca, a software services company based in Mountain View, California.

“Partnerships and scale are essential to winning over the long term in [the] automotive” industry, Mr. Paliwa noted in his statement on the acquisition — noting that tying in with Samsung gives both firms an edge in the competitive field.

And that is competitive with a capital C as Apple, Alphabet, Tesla and Uber are just the short list of Northern California all-stars that are also looking to reboot the wide world of automobiles — mainly with a focus on connected cars for the now, and self-driving cars for the (not too distant?) future.

Samsung now finds itself at the table with Toyota supplier Denso Corp., German mega-supplier Robert Bosch GmbH and Sweden’s Autoliv Inc., a safety-components supplier that has benefited from troubles caused by rival TakataCorp.’s air-bag recalls.

The largest auto suppliers boast revenues of $20 billion or more annually, meaning they are ideally suited to the capital-intensive world of giving automobiles a technological facelift.

Samsung, unlike many of its rivals, seems uninterested in making its own car — but believes the future of these cars will rely on the underlying hardware and software that will power the next generation of car: semiconductors, display panels and mobile services.  Though Samsung normally eschews big price tag acquisitions in favor of building capacity internally — in this case upper-level management seems to have determined that it would be both faster and more efficient to make an acquisition and get into the market now.  Talks with Harman began over last summer.

Harman will remain an independent subsidiary of the technology giant. Samsung will pay $112 a share in cash for Harman, which generated roughly $700 million in net profit on $7 billion of revenue last year. This deal must be approved by Harman’s shareholders.

Samsung’s war chest was holding about $71 billion at the end of September this year, and though Samsung doesn’t historically love acquisitions, it is willing to spend big to get competitive fast.  In just five years, it plowed roughly $3 billion into complex biologic drugs, where it is already one of the world’s biggest players.

But Samsung is relatively new to cars in the last few decades — just when everyone else seems to want a piece of that action. The questions to watch will be if Samsung’s different method of attack will pay out.