Intelligent Transportation Systems Update – April 2024

Capstone’s latest Intelligent Transportation Systems (ITS) Update reports that despite a difficult financial macroenvironment, global merger and acquisition (M&A) activity in the ITS sector remained strong through 2023. Transaction activity has been buoyed by increased data availability and original equipment manufacturers’ (OEMs) continued shift to retrofit existing products and develop next-generation, interconnected technologies. Basic Intelligent Transportation Systems, including calling for emergency services, using cameras to enforce traffic laws, and the installation of variable road signage denoting speeds and estimated time of arrival, have been implemented over the past decade. These systems, which are currently operated manually, have undergone a dramatic technological shift with the onset of internet of things (IoT), 5G, edge computing, and artificial intelligence, allowing for interconnected and smart devices to automatically update based on current traffic conditions and other external factors.

Smart devices span a range of product types including: 1) sensors, which can detect and alert drivers to incoming pedestrians and other roadway inhabitants; 2) vehicles, including connected and autonomous vehicles (CAVs), connected to a cloud-based platform that can simultaneously synchronize traffic and the surrounding infrastructure; and 3) systems that allow hardware, software, and related data sets to harmonize the broader ITS ecosystem. The shift to these smart devices and systems has been a major contributor to the ITS market’s future growth.

Industrial Technology-focused private equity groups have begun to demonstrate high levels of interest in the space, seeking larger acquisitions to serve as new platforms or smaller targets to bolster existing portfolio companies. As a result, global M&A activity in the ITS sector has remained strong with 127 transactions announced or completed in 2023. While this marks a decline compared to 2021 and 2022, acquirers in the ITS sector have actively capitalized on the continued shift to advanced ITS technologies. Cross-border M&A transactions have continued to proliferate in the ITS sector in 2023, accounting for nearly 40% of total deals. Approximately a quarter (22.1%) of these deals involve transaction targets and buyers across the U.S./Canada border looking to consolidate within the fragmented North American ITS market. M&A transaction multiples in the ITS sector have remained robust through 2023, nearly matching the broader Industrial Technology industry average. Although large-scale deals in the sector have continued to garner premium valuations, the middle market has also received favorable M&A pricing. Strong valuations in the middle market can likely be attributed to a fragmented sector and buyers continually seeking to vertically integrate across the value-chain and incorporate technology differentiators into their operations.

Also included in this report:

• How average sector purchase multiples have fared compared to the broader Industrial Technology industry.
• A breakdown of several notable M&A transactions in the space demonstrating buyers’ acquisition criteria.
• An in-depth analysis on the Capstone-advised sale of Polara Enterprises to private equity firm Vance Street Capital.