Industry)4.0)– Opportunities)from)an)M&A)PerspectiveAugust&2016

August&2016 2

The&Internet&of&Things&is&ground&zero&for&a&new&phase&of&global&transformation&powered&by&technology&innovation,&generating&significant&economic&opportunities&and&reshaping&industries.

A Marc&Benioff,&Salesforce.com

“

Source:&WEF

August&2016 3

Scope&of&Industry&4.0

Sources:&Gartner,&McKinsey,&Zühlke

LowApower&sensors)enable)every)object)to)become)part)of)the)digital)world) in&the&Internet&of&Things&(IoT).&Here,&a&digital&“clone”&of&the&object,&its&functions&and&associated&processes&is&created,&can&be&analyzed&and&manipulated.

These&connected&IoT devices)are&estimated&to&grow)rapidly)from&6.4bn&(2016)&to)20.8bn)(2020))(CAGR&34%).Four&technology&clusters&drive&this&development:

! Data)and)connectivity! Analytics)and)intelligence! HumanImachine)interaction! DigitalItoIphysical) conversion

Industry)4.0)is)based)on)the)Internet)of)Things)with)its)ubiquitous)digitization)of)physical)objects)through)sensors

Development)of)the)Internet)of)ThingsInternet)of)Things)(IoT)

Leading&to&new)consumer)and)enterprise)applicationswithin&revised)value)chains)and&business)model)opportunities for&both&incumbents&and&new&players

August&2016 4

Enterprise)applications)in)factories)are)assumed)to)provide)the)greatest)impact)with)up)to)USD)3.7)trillion)in)2025Scope&of&Industry&4.0&(contd.)

Source:&McKinsey&Global&Institute

Sources of&value&created&by&IoT:! Efficiency&/&productivity&gains! Energy&savings! Greater&quality&! Higher&flexibility! Inventory&optimization! Health&and&safety&improvements

Requirements of&estimated&impact:! Interoperability&of&IoT&systems! Usage&of&more&collected&data! Security&and&data&privacy! Intellectual&Property! Transformed&organizational&structures&with&the&right&talent

! Regulatory&approvals

August&2016 5

Evolution&of&Business&Models&in&Industry&4.0

Sources:&WEF

The)main)disruption)from)Industry)4.0)will)come)from)the)shift)to)an)“outcome)economy”)with)reshaped)value)chains

! Based&on&aggregated&data&and&their&customers’&needs&businesses&will&need&to&guarantee)certain)outcomes of&their&products/services,&resulting&in&greater)risks)for&businesses

! Collaboration)of&businesses&across)ecosystems)required&to&successfully&meet&customers&needs

! Emerging&of&new)software)platforms)to&facilitate&these&ecosystems,&which&leaders&will&benefit&from&their&scale&and&allow&them&to&set&standards

Disruptions)from)the)Outcome)Economy)

August&2016 6

Industry&4.0&Strategies&at&Incumbents&

Source:&KUKA

KUKA)secured)industry)leadership)in)robotics)and)created)value)through)its)holistic)Industry)4.0)readinessIstrategy

Key)Facts! Worldwide&leading&manufacturer&of&industrial&robots&with&12.3k&employees&

! #1&in&global&automotive&robotics! Revenue&2015:&EUR&3.0bn&@&4.6%&EBIT&margin

! Cash&2015&EoP:&EUR&496m! Listed,&94.6%&acquired&by&China’s&Midea Group&until&Aug&2016

Industry)4.0Irelated)Developments! Early&on&embraced)connectivity)of)their)robots)and&utilized&their&data&via&cloudAbased&networks.&E.g.&set&up&first&connected&automotive&factory&in&2006&for&Jeep&Wrangler&in&the&US&through&linking&their&259&robots&to&60k&devices&in&an&IoT&solution&allowing&to&reliably&create&one&body&every&77&seconds&in&the&desired&configuration

! Provide&with&KUKA&Connect&an&own&software)platform)for&third&parties&to&integrate&with&in&order&to&leverage&the&collected&data

! Through&continuous&product)innovations)and)solutions,&such&as&selfAlearning,&sensitive&light&robots,&entering&new&industries,&such&as&healthcare&(together&with&Siemens,&among&others)&and&eCommerce

! Transformed)organization)towards&a&global&technology&group&with&strategic)partnerships

Impact)of)M&A)Activities! Acquisitions&have&been&a&major&driver&of&this&development.&Main&ones&include

! 2013:&Majority&share&acquisition&of&system&integrator&Reis)Robotics)– offering&now&under&KUKA&Industries&integrated&robots&and&plant&engineering&knowAhow

! 2014:&Acquisition&of&the&automation&provider&Swisslog – enabling&selfAorganizing&value&chains&in&distribution&and&healthcare

! Resulting&in&! Acceleration&of&product/solution&portfolio&(R&D)! Entries&of&new&industries&(eCommerce,&healthcare)&and&further&market&penetration&(China)

! Extended&sales&revenues&through&synergies! More&diversified&revenue&sources&with&now&50%&from&systems&(31%&robotics),&whereof&already&50%&of&total&are&from&nonAautomotive&industries

August&2016 7

Sources:&Dürr,&Trumpf

German)automation)and)machine)tools)leaders)aim)to)build)Industry)4.0Ienabling)platforms)for)their)customers

Company)Profile! World's&leading&mechanical&and&plant&engineering&firm&with&revenue&of&EUR&3.8bn&(2015)&@&7.1%&EBIT&margin,&14.9k&employees

! Listed

Industry)4.0Irelated)Developments! Implementing&first&projects&around&smart&factory&! Woodworking&machinery&provider&HOMAG&(acq.&in&2014)&realized&batch&size&1&production&at&Polish&plant&of&fourth&largest&European&furniture&manufacturer

! Continuously&digitizing&own&processes&

Impact)of)M&A)Activities! 2015:&Acquisition&of&iTAC,&a&leading&software&provider&of&Manufacturing&Execution&Systems&(MES)&(approx.&EUR&15m&revenue&(2015))

! Complementing&Dürr’s own&MES&(EcoEMOS)&and&building&the&basis&of&digital@Dürr strategy

Company)Profile! Worldwide&leading&company&for&machine&tools,&lasers&and&electronics&for&industrial&applications&with&revenue&of&EUR&2.7bn&(2014/15)&@&13.1%&EBIT&margin,&10.9k&employees

! FamilyAowned

Industry)4.0Irelated)Developments! Offering&with&TruConnect an&automation&workflow&solution&with&focus&on&increased&efficiency&for&small&batch&sizes

! In&2015,&founded&the&software&startAup&AXOOM (in&cooperation&with&Karlsruhe&Institute&of&Technology)&that&develops&a&business&platform&for&the&manufacturing&industry

! Open,&modular&platform&aiming&to&integrate&players&from&the&whole&value&chain,&including&an&app&store&for&third&parties

! Helping&Trumpf’s customers&to&stay&competitive&by&enabling&Industry&4.0

Industry&4.0&Strategies&at&Incumbents&(contd.)

Focus)on)M&AIenabled)software)platform)strategy Focus)on)own)collaborative)software)platform)strategy

! Domestic&Incumbents

! International&Incumbents

! Technology&Players

! Financial&Investors

August&2016 8

Drivers&of&M&A&in&Industry&4.0

Strategic)M&A)transactions)can)be)seen)as)an)effective)way)to)accelerate)transformation)path)towards)Industry)4.0

Potential)Acquirers)(selected)Main)Strategic)Drivers

Access&to&Technology)Assets)and&Product)/)IP)Portfolio

Access&to&new)Industries)and)Markets

Transformation of&Organization&through&Talent

Consolidation – vertically&and&horizontally&– to&foster&own&ecosystem

August&2016 9

Industry&4.0Arelated&M&A&activity&in&DACH

Source:&Lincoln&International

Increasing)deal)activity)in)GermanIspeaking)Europe,)though)highly)fragmented)target)market)with)small)deal)sizes

Based&on&44&Industry&4.0Arelated&M&A&transactions&in&DACH&(2011AQ1&2015)&activity&is&characterized&by:

! Majority)of)deals)are)domestic)driven&by&adding&Industry&4.0&competencies&in&context&of&“smart&factory”

! 75%)of)all)transactions)involved&target&companies&with&less)than)EUR)50m)revenue)which&reflects&both&early&phase&of&Industry&4.0&activity&and&high&fragmentation&of&relevant&technology&companies

! Increasing)trend)in&number&of&transactions&since&2013

August&2016 10

Conclusion&and&Outlook

Most)players)need)to)embrace)Industry)4.0)more)comprehensively)in)order)to)exploit)its)opportunities)and)stay)competitive

! Industry&4.0&offers&an&enormous)growth)opportunity)for&both&domestic&incumbents&and&new&players&in&the&manufacturing&industry&through&its&greater&technologyAenabled&customer&focus.

! Along&the&technology&stack&new)competencies)are)required)(such&as&data&analytics)&in&order&to&compete&successfully&in&a&rapidly&changing&environment&driven&by&new&emerging&ecosystems&and&platforms.

! So&far,&mainly)incumbents)are)prepared)for&this&transformation&with&an&Industry&4.0&strategy&which&implementations&often&include&M&A)in)order)to)accelerate)their)technology)roadmap)and&to&get&the&right&talent&for&its&execution.

! Beyond&M&A&strategic)partnerships)across&industries&become&more&important&besides&cooperative)ventures)(including&own&corporate&venture&funds&in&certain&cases)&in&order&to&stay&competitive&through&earlyAon&identification&and&adaptation&of&new&technologies.

! Similar&to&the&development&in&the&Consumer&Internet,&but&at&a&slower&pace&due&to&the&complexity,&we&expect&certain&industryIleading)networks)to)evolve)first,&followed)by)vertical)applications)customized&to&specific&customer&groups.&Simultaneously,&innovations)in)enabling)technology)(based&on&the&analytics&and&connectivity&layer&of&the&stack,&such&as&decentralized&data)&will&mature.

! Overall,&for)potential)M&A)targets)domestic&players&will&not&only&compete&with&their&international&counterparts,&but&also&much&more&with&technology&players&besides&(specialized)&financial&investors&in&the&near&future.&This&increased)competition)will&most&likely&lead&to&higher&multiples&being&paid.

I)am)looking)forward)to)personally)discussing)the)opportunities)arising)from)Industry)4.0)with)you.

Sven&EppertM&+41&76&537&06&30sven@em2.co

em2&– Enabling&Entrepreneurial& TransactionsHagenbuchenstrasse&7&A CHA8303&Bassersdorfwww.em2.co

August&2016 12

The)Internet)of)Things)is)not)a)single)market)but)a)collection)of)overlapping)ecosystems)along)the)technology)stack

Applications

IoT)Technology)Stack

Backup

Source:&Bain

Internet&of&Things

August&2016 13

Manufacturing)Execution)System)(MES))as)the)essential)part)to)control)and)analyze)the)production)process)Platform&Technology

Backup

Source:&Dürr

August&2016 14

Source:&Lincoln&International

Backup

Industry)4.0Irelated)M&A)activity)in)GermanIspeaking)Europe)(2011)I Q1)2015)M&A&Transactions

August&2016 15

Source:&Lincoln&International

Backup

Industry)4.0Irelated)M&A)activity)in)GermanIspeaking)Europe)(2011)I Q1)2015))(contd.)M&A&Transactions