Two bottles of champagne were opened Friday afternoon on the roof of the offices of Argus Cyber Security, a Tel Aviv startup whose technology protects network-connected vehicles from hacking. The first was opened by a representative of the giant German auto equipment manufacturer, Continental, while the second was popped by Argus’ CEO, Ofer Bin-Nun.
A few hours earlier, the two sides had signed an agreement for Continental to buy Argus for an estimated $400 million to $450 million in cash.
This is a phenomenal exit in terms of investor return and respectable in and of itself. Argus, which was founded only four years ago, had raised only $30 million in capital, although its last round of financing, completed two years ago, was for $26 million, a symbol of investor confidence and company momentum. Among the investors were vehicle equipment supplier Magna and the Alliance insurance company. But Argus’ value on paper, even after its last round of financing, was far lower than the purchase price.
While Argus was among the first to develop software that protects vehicles against cyberattacks, it isn’t the only such company on the market. What’s more, its market doesn’t even really exist yet – the company has almost no revenues – but it has hopes of future sales to large international auto manufacturers. Argus had recently collaborated on a project with Continental itself. For Continental, one of the world’s largest suppliers of vehicle components and technology, it was a strategic acquisition, aimed at equipping itself for the complex race toward building the car of the future.
A significant component of the deal was the acquisition of the founding team and other skilled employees. Argus was established by three former officers from Military Intelligence Unit 8200 and was mentored by veterans from both the cybersecurity and vehicle industries. Moreover, the establishment of a center in Israel gives Continental a presence in the international cyber capital and in the heart of a vibrant industry that includes Mobileye and dozens of development centers of the world’s largest companies.
Another reason for the relatively high price Continental paid was the competitiveness of the transaction. The negotiations to buy Argus began months ago but came into the home stretch only in recent weeks – even as Argus was talking to several other firms, including Panasonic. The Japanese giant is known to most as a consumer products company selling electronics, but it is also considered one of Continental’s competitors as a vehicle technology supplier with a design vision for the vehicles of the future.
That all the parties knew about the negotiations with competing firms might have posed a risk, but it paid off in the end for the small startup. Not only did Continental very much want Argus’ technology and staff, it was also determined that no one else should get them. Argus not only had a good product; it had matured at the right time.
Israel in car manufacturers’ sights
The deal highlights the “arms race” taking place within the world of auto manufacturing. The industry is advancing quickly, albeit cautiously, toward realizing the vision of the autonomous vehicle, which includes several stages, in which vehicles become more networked and “smarter.” As a result, companies that only a few years ago were dealing primarily with simple mechanics and metals have become giant platforms for advanced technologies.
On this playing field one finds not just the familiar vehicle manufacturers, but also equipment suppliers, who are building entire systems to control vehicles. For this they need radar, LIDAR systems (advanced distance technologies), and various hardware and software components – and of course, a protective element
The number of global players in these fields isn’t that large, which has made Israel a pilgrimage site for all automotive companies – carmakers and equipment makers alike. Only last week Continental, Delphi and Hyundai all announced the launch of new activity in Israel. Over the past six months Delphi has invested in three Israeli startups, as have Magna and Mercedes. These huge companies are equipping themselves with a range of tools and are prepared to pay high prices for young technology companies.
Delphi, for example, last week bought the American startup NuTonomy, which develops software for self-driving cars, for $450 million. Like Argus, NuTonomy employes some 70 people and has no actual sales. A year ago, Ford spent tens of millions of dollars to acquire the Israeli firm SAIPS, which executed several projects involving deep learning and computerized vision
It’s clear why the auto companies are anxious to acquire the technologies. The cycle of planning and manufacturing cars is long. Production lines for 2020 model cars and beyond are already being planned, so agreements signed now will serve the companies for many years to come. The largest players in the industry, those valued at tens of billions of dollars, are rushing to acquire the best possible technologies. Any company that fails to do so could fall behind.
Israel now has dozens of technology companies that are developing solutions for the vehicle market of the future, and hundreds more whose activities could be indirectly adapted to it. Among the companies that could close huge deals in the coming years are Innoviz and Oryx, which develop LIDAR systems; Valens, which develops chips to accelerate large quantities of data; and Otonomo, which has developed a communications platform so that vehicle manufacturers can communicate with service and application providers. The acquisition of Argus may generate interest in other cybercompanies operating in the automotive field – many of which are located in Israel.
Want to enjoy 'Zen' reading - with no ads and just the article? Subscribe todaySubscribe now