On 17th May 2023, Michelin (Groupe Michelin), one of the largest tyre manufacturers in the world (market cap of ca. $21 billion), agreed to acquire Canopy Simulations, a UK-based simulations software company.
Tech – Canopy Simulations: Canopy Simulations is a leading global lap-time simulation software. Its cloud-based system combines circuit, car, and tyre models with an advanced trajectory optimisation function to simulate the perfect ‘virtual driver’. It claims that it is the only simulation supplier in Formula One, and the leading supplier to Formula E.
Non-Tech – The Michelin Group: Michelin is a leading global manufacturer of tyres for passenger vehicles. Its operations are organised into three operating segments – 1) Automotive and related distribution; 2) Road transportation and related distribution; and 3) Specialty businesses and related distribution. The company has 117 production sites in 26 countries, a commercial presence in 170 countries, and 9 R&D centres globally.
Note – to see all the other “Techquisition” deals that were announced globally in May 2023, you can access them here.
On 17th May 2023, Michelin entered into a definitive agreement to acquire Canopy Simulations for an undisclosed amount.
The primary shareholder value creation for Michelin comes in the form of the strategic partnership it has agreed with Canopy Simulations (see the section below).
Like most other techquisition deals, the market reacted favourably to the investment announcement given the positive outlook associated with the strategic potential of the investment and the fit with Michelin’s technological transition.
Even in these difficult market conditions, Michelin’s share price increased by 1.5% from May 17 to May 23 versus a flat Euronext 100 Index, implying a net addition to shareholder value of ca. $300 million, (which is likely to be higher than the acquisition consideration amount), due in large part to the strategic partnership that is aligned with the techquisition.
Canopy Simulations, a UK-based software company, provides one of the most sophisticated automotive simulation software tools.
It has built a cloud-based system that combines circuit, car, and tyre models with an advanced trajectory optimisation function to simulate the perfect ‘virtual driver’ input. Canopy Simulations’ clients include F1, F2, F3, FE, WEC, IndyCar & America's Cup teams.
The company’s software is built to take increasingly detailed and varied driver models into account for both the racetrack and road development applications. When the software is used for motorsport purposes, the virtual driver performs the basic tasks, such as a simulated four-hour stint at Le Mans (an endurance-focused sports car race) to evaluate tyre consistency.
In the case of road development applications, it enables automobile manufacturers to reproduce a variety of driver profiles, alongside different car and tyre usages.
Michelin uses its thermodynamic Tame Tire software to replicate how the properties and behaviour of raw materials and tyre pressures were influenced by temperature fluctuations.
The software has evolved owing to the abundance of technical data collected at races. This unique mathematical data processing expertise puts it a step ahead when it comes to tyre modelling, simulation, and development. Given this backdrop, Michelin acquired Canopy Simulations.
“By accelerating innovations that favour increasingly efficient racing and mobility, simulation optimises Michelin’s work with its partners and vehicle manufacturers, while at the same time reducing its Research and Development environmental footprint and providing real savings compared with longer, more traditional development cycles”
John Howe, MD of Michelin UK
Michelin has recognised the impact of digitisation on society and has clearly laid out its plans to position itself as a data-driven company.
Source: Michelin 2022 Universal Registration Document
As part of its growth strategy, Michelin acquired RoadBotics in July 2022. Founded in 2016, RoadBotics is a US-based company that leverages artificial intelligence to identify priority maintenance areas by analysing visual data collected on roads by smartphone cameras.
With this computer vision expertise, Michelin has enriched its services and solutions portfolio and can now support road infrastructure managers in making the right choices to optimise and secure their road networks.
Prior to RoadBotics, Michelin made several strategic acquisitions such as Sascar in 2014, NexTraq in 2018 and Masternaut in 2019. These are now regrouped under a single umbrella branded as ‘Michelin Connected Fleets (MCF)’.
Michelin has leveraged the strong capabilities acquired from the acquisitions and combined its services like emergency road assistance operating 24/7, light mechanical repair or tyre maintenance contracts with sophisticated sensor-based services and algorithms.
Source: 2023 Michelin Capital Markets Day - Summary
MICHELIN Mobility Intelligence, the group’s mobility data platform, is a leading player in the field of mobility and driving behaviour data analysis, with more than a billion kilometres analysed and more than 40 million drivers connected in the United States and Europe.
“At MICHELIN Mobility Intelligence, we believe that technology and data can help make mobility safer, more environmentally friendly and more accessible”
- Phillipe Armand, CEO, MICHELIN Mobility Intelligence
The global simulation software market was valued at $9.9 billion in 2021 and is projected to reach $33 billion by 2030, growing at a CAGR of 14.4% (2023 to 2030).
Within the overall global software simulation market, the automotive simulation software market was valued at ~$2 billion in 2021 and is projected to reach ~$4.8 billion by 2030, growing at a CAGR of 11.1% (2023 to 2030).
Automotive simulation is used extensively by OEMs to identify any flaws in a vehicle component before it is installed, improving the effectiveness of the finished product.
The rapid change in consumer preference for electric vehicles and premium cars that supply optimum power and speed is expected to increase automotive simulation software demand owing to its ability to provide stable driving performance, enhance vehicle efficiency and reduce carbon footprint.
Additionally, the introduction of stringent vehicle safety regulations in numerous countries is set to provide lucrative opportunities for the automotive simulation market. The growing focus of regulatory agencies on improving passenger safety and the software’s ability to help OEMs detect faults before customer use is expected to boost industry growth.
When it comes to the development of tyres for racing or production sports cars, simulators are the ideal tool. For example, at the 2023 Le Mans 24 Hours, all the prototypes competing in the race's headlining Hypercar class will be equipped with tyres that were developed entirely using simulation software.
Simulation technology forms an essential part of Michelin's relationship with its automobile industry partners because of the indispensable role it plays in the development of original-equipment, high-performance tyres.
The combination of mathematical modelling and simulators effectively makes it possible to determine which tyre sizes and technologies are best suited to a new car model as a function of its technical and weight-distribution characteristics.
Based on data-processing technology and advanced mathematical algorithms, simulation technology is a tool that consolidates Michelin's status as a technological leader and data-driven company.
By accelerating innovations that favour increasingly efficient racing and mobility, simulation optimises Michelin's work with its partners and vehicle manufacturers, while at the same time reducing its R&D environmental footprint and providing real savings as compared to longer, more traditional development cycles.
The technology reproduces dynamic reality as a result of the interaction of three digital models. The first replicates the characteristics and grip properties of circuits, the second covers the properties of the vehicle's chassis (or even the entire vehicle), and the third reproduces tyre behaviour in extreme detail.
Behind the wheel of a simulator, drivers are able to test different types of tyres across an exceptionally wide spectrum of configurations.
To complete the process, the drivers' subjective impressions and feedback are taken onboard alongside the objective data provided by the simulator, on which drivers perform just as they would in a real car or on a real racetrack.
As drivers adapt to this digital revolution, their mission has evolved considerably, with younger drivers honing their race-craft at the same time as they acquire simulator-related skills. The bridges between the real and virtual worlds have become a priority.
Michelin’s techquisition of Canopy Simulations further strengthens its positioning as a data-driven company in the field of automotive simulation.
“The use of simulation technology for tyre testing and development is a necessary step forward in the industry. It enables Michelin to be more environmentally sustainable in its tyre development and testing processes, while benefitting from real-life data to keep developing tyres that offer drivers the level of performance they need”
John Howe, MD of Michelin UK
Michelin’s acquisition is a great example of how a traditional business belonging to the automotive industry is actively engaged in the journey of transforming itself to deliver greater value to its stakeholders by properly positioning itself for the digital future, ready to tackle disruptions as they come.
The essence of the transformation unfolding is embedded in a strategy execution approach we have trademarked and call TechquisitionTM, which my firm, Aquaa Partners, has designed and delivers to its clients every day as an experienced and trusted expert partner.