Harman to Acquire Software and Services Companies in Bid to Boost Role in Connected Space
Harman announced purchase agreements designed to position the company as a leading software provider for the connected space. CEO Dinesh Paliwal said on a Thursday conference call that Harman’s planned buys of Symphony Teleca, which provides software engineering and integration services globally, and Red Bend Software, provider of over-the-air (OTA) and cybersecurity software, will transform Harman into a “comprehensive products, systems and engineering services company” for the automotive, telecom, media, CE, media and healthcare markets. Through the acquisitions, Harman will be able to “enable and enhance the connected lifestyle people want,” Paliwal said. Both companies have been service providers to Harman “for some time,” he said.
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The Red Bend transaction is valued at $170 million -- about $99 million in stock and $71 million in cash, Harman said. The agreement to buy Symphony Teleca calls for a base purchase price of $780 million, including $382 million in cash and $166 million in Harman stock. Selling Red Bend stockholders are eligible for a cash earn-out based on a calendar 2015 revenue target, Harman said.
Combined, the two acquisitions will add some 8,000 engineers -- most from Symphony Teleca -- to Harman’s current engineering staff of 3,500 in software and 3,000 in hardware and industrial design, Paliwal said. Upon completion of the deal, Symphony Teleca CEO Sanjay Dhawan will be president of Harman’s new software and services division, which will become the company’s fourth operating unit. Symphony Teleca, based in Silicon Valley, has a customer base including Adobe, Comcast, Google, Intel, Jaguar, Land Rover, Microsoft, Verizon and SiriusXM, and is well-positioned in the mobile and automotive segments, Harman said.
Symphony Teleca, which brings a platform for integrated services geared to converged markets, along with software engineering and integrated services for the connected experience, offers Harman “immediate scale and engineering services to accelerate connected car innovations,” Paliwal said. Symphony’s software development capabilities will enable Harman to integrate and leverage high-margin segments including the cloud, mobile devices, design and analytics, said Paliwal. He said Symphony is the “largest Android ecosystem scaling partner worldwide,” plus a strategic partner of Microsoft.
The Symphony Teleca buy is part of a strategy to grow Harman’s existing business segments and broaden the company’s reach into new industries and markets, Paliwal said, citing the convergence of telecom, automotive and mobile devices. After the acquisition, Harman will be able to provide a “complete set of software defined services” around predictive analytics, cloud enablement, the IoT gateway, turnkey mobile development and commercialization “to enable everything from autonomous driving to intelligent cities,” he said. Paliwal cited growing demand for BYOD (bring your own device) in the entry-level automotive market, where Harman doesn’t currently play, calling it a “great add-on” for emerging markets.
Israeli company Red Bend -- with a customer base including AT&T, China Mobile, Huawei, Lenovo, LG, Samsung, Sprint, Telit and Verizon -- provides over-the-air software and hypervisor-based virtualization technology for cybersecurity applications. The technology is positioned to meet the demands of the connected car and can be a “prerequisite to autonomous driving,” Paliwal said. That includes the ability to deliver “safe, secure OTA updates” for on-board and non-Harmon automotive systems, “either embedded or downloaded,” Paliwal said. Harman’s goal is for Red Bend software to become the “de facto standard for OTA software” for mobile devices and automotive applications, he said. Red Bend’s software is the first industry product to keep embedded technology up to date with firmware, software and apps, he said.
On the potential overlap customer overlap with Harman competitors, Paliwal referred to an emerging era of “coopetition” in technology. “We have worked with several companies that we compete with,” he said, “and we also collaborate with them.” He compared Harman’s planned purchases to its previous acquisition of QNX. As a separate division, QNX worked with other OEMs and tier one companies in addition to Harman and “it worked very successfully and very collaboratively,” he said. As Harman did with QNX “we will offer Red Bend software to other tier ones and make it an industry de facto standard,” he said. Red Bend CEO Yoram Salinger will lead Red Bend, which will be part of Harman’s Infotainment group, Paliwal said.
Paliwal said Symphony Teleca operates in vertical markets where Harman doesn’t currently play. A small portion of the company’s revenue comes from healthcare, retail and banking industries where it supplies cloud, mobility and analytics, “which every business will require whether you are a little storefront or you run a large factory,” he said.