FEATURES - Cover Story
August 29, 2016

Where the Investment & Expected Growth is in the IoT

Agriculture, building automation, health care, and (especially) transportation are the hottest areas of investment related to the Internet of Things, says Homaira Akbari, who presented a talk about IoT investment and growth at July’s IoT Evolution Expo in Las Vegas.

There are seven main transportation categories, according to Akbari, the founder, president, and CEO of AKnowledge Partners, which provides strategic advisory services related to big data, IoT, and security to private equity, Fortune 1000, and governmental clients. They are asset tracking, driver behavior, heavy and medium trucking, insurance, leasing/rental/car sharing, light commercial, and stolen vehicle recovery.

In the last 36 months, at any given time, there have been two to four active deals in the IoT transportation space, which includes consumer and enterprise segments, said Akbari, who added there were at least five active sales negotiations in the U.S. alone when we spoke on June 13. And since 2012, there have been around 30 acquisitions with a valuation of at least $20 million in this space, she added.

For example, HERE, a division of Nokia focused on mapping data for the IoT, in August of 2015 sold for 2.8 billion euros ($3.2 billion), making it a unicorn, said Akbari. The buyer was a consortium of the German automobile companies Audi, BMW, and Daimler.

Meanwhile, several companies in the IoT transportation space have gone public, or plan to do so in the near future.

Mobileye is one of the more noteworthy players in this space, Akbari indicated. The Jerusalem-based company, which was founded in 1999, raised $890 million in its first few days on the New York Stock Exchange in August of 2014, resulting in a market cap of $7.85 billion. Last year Mobileye reported $240.9 million in revenue and $68.45 million in net income. Its shares were trading at $34.86 in mid June.

Twilio is another company that Akbari loosely groups in the IoT transportation category. That’s because Twilio’s technology is used by Uber. After its launch, Uber tapped Twilio to improve its ability to keep customers abreast of the status of their rides via real-time text messages.

“It’s been invaluable to have a reliable service to tell folks what’s going on with their ride,” said Uber co-founder and CEO Travis Kalanick.

A VC-based cloud communications platform company founded in 2008, Twilio in June went public, in a move that gave the company a valuation of more than $1 billion. Twilio’s APIs, which address authentication, messaging, and voice and video communications, enable developers to build apps that can be used to communicate with everyone in the world.

Health Care
While there’s already been a lot of action, including investment, in transportation relative to the IoT, health care is looking pretty great too, Akbari indicated.

“The next big market is health care,” she said.

Indeed, in announcing its acquisition of Withings this April, network infrastructure giant Nokia noted that health care is expected to be one of the largest vertical markets in the IoT, with analysts forecasting that mobile health, with a compound annual growth rate of 37 percent, will be the fastest growing health care segment from 2015 to 2020. (Withings is a company based in France that sells such products as activity trackers, blood pressure monitors, thermometers, and more.)

Akbari chalks up the forecast growth in IoT-related health care to the three major changes she sees occurring in the health care space. Those are changes in where health care is consumed, what happens after it’s consumed, and how health care is funded.

For years health care was principally delivered and consumed in hospitals. Then we saw the rise of more clinics.

“Now we’re in the era of virtual visits,” Akbari opined.

There were an estimated 50 million virtual visits averaging $40 per session last year in the U.S. alone, she said. The fact that 61 percent of Americans own smartphones with cameras is helping enable this, she added.

Connected technology also now enables doctors and other medical professionals to monitor patients remotely following procedures, Akbari noted. For example, a doctor could do his or her rounds at a hospital while patients are in post-op, but while still keeping tabs on those individuals.

In addition to remote patient monitoring and data delivery, the IoT opportunity in health care also includes asset tracking and monitoring, and emergency detection and response (for the elderly), she said.

To her point about the change in how health care is paid for, Akari noted that today big health care entities like Kaiser Permanente are both the providers and the payers. She also talked about how many people today are paying out of pocket for health care, referencing Massage Envy, which she said has now expanded to 1,000 locations.

Building Automation
When most people hear the terms building automation and the IoT, Nest is probably the first company that comes to mind.

Nest is among a handful of IoT unicorns (that is, private companies that reached a $1 billion valuation). As you probably remember, Google bought Nest a couple years ago for $3.2 billion.

But a March piece by BGR calls the deal a disappointment, saying that “Nest is reportedly in shambles” and “has never been able to meet Google’s annual revenue goals of $300 million.”

Nonetheless, excitement and investment in the building automation space continues – especially on the commercial as opposed to the residential front. In fact, in the last 24 months, at any given time, there have been two to three active deals in IoT building automation, which includes smart grid.

In fact, just this April GE announced plans to buy Australian building automation startup Daintree Networks for $100 million.

“By combining Daintree’s open-standard control and sensing technology with GE’s Predix platform, Current’s building automation platform and its energy-as-a-service offerings, we’ll deliver the industry’s first next-generation, scalable cloud-based energy management and facilities optimization platform for every building type and size,” said Maryrose Sylvester, president and CEO of Current, powered by GE. “Our combined strengths will help customers, big or small, achieve a reduced carbon footprint and increased energy savings, and provide a solution for ecosystem partners to grow.”

In July 2015, Honeywell announced its intention to purchase the Elster division of Melrose Industries plc – a provider of smart meters and software and data analytics solutions, among other utility offerings – for $5.1 billion. The deal, which closed this January, translated into approximately 12.6 times Elster’s estimated 2015 EBITDA, Akbari said.

In November of last year, Twenty First Century Utilities, which operates moderate-sized regulated utilities, revealed its acquisition of GridPoint, a provider of data-driven energy management and control solutions used by top retailers and other institutions, for an undisclosed sum.

And Panoramic Power was acquired by Direct Energy for $60 million the same month. The acquired sold wireless sensors used to gather energy information in business environments.

“The commercial industry trend is moving toward more centralized energy management solutions with a focus on automated energy data collection and reporting, which is why Direct Energy aims to seamlessly incorporate Panoramic Power’s technology and analytical expertise into what we offer our growing customer base,” John Schultz, president of Direct Energy Business, said at the time. “Customers will be able to see energy insights, such as once unpredicted device failures, energy-related infrastructure investment ROI, and other valuable information that can inform and affect major business decisions

in the future.”

Outdoor lighting, in which Philips is a big player, is another interesting application in this general area, said Akbari. Municipalities and other organizations can use IoT sensors and related technology to know when to dim or turn off lights for cost savings and environmental benefits.

IoT technology can also be useful in providing cost savings and environmental benefits related to agriculture, an area Akbari pointed out has high demand but difficult to manage resources. The need to more efficiently use the Earth’s land and water resources will only expand in light of the world’s growing population and climate change, she added.

The good news for IoT companies targeting the ag space is that farming has long been on the cutting edge of technology. Indeed, big farm machinery companies like Caterpillar and John Deere have long leveraged telematics, and drones and microsatellites and sensors are enabling the collection of very detailed land and weather data that can be put to use for precision agriculture, Akbari noted.

Interest in this space led Monsanto to buy Climate Corp. in 2013 for $930 million. The acquired was previously funded by Founders Fund, Google Ventures, Khosla Ventures, Index Ventures, and New Enterprise Associates.

“Climate’s cofounders were early Google employees who saw a self-service approach to weather insurance, which had previously been sold in custom, over-the-counter negotiations,” explained a Forbes article from October of 2013. “Clients go to its site and outline what range of temperatures and/or rainfall they want protection from, for a set period of time. In 100 milliseconds Weatherbill [the former name of Climate Corp.] crunches forecasts and 30 years of National Weather Service and geological survey data for the user’s location. After adjusting – minutely – for climate change, Weatherbill names a price and acts as the underwriter.”

Also in 2013 Land O’ Lakes Inc. bought Geosys, a company that provided satellite imaging and insights to agribusiness.

“Today’s purchase demonstrates Land O’Lakes’ leadership in helping to build the farm of the future with cutting-edge concepts and technologies,” Land O’Lakes President and CEO Chris Policinski said in announcing the Geosys deal. “These industry-leading technologies give farmers the tools to make critical decisions to improve yields while reducing their environmental footprint and further help our member cooperatives to leverage proven tools that turn data into decision enablers that drive productivity and sustainable agricultural practices.”

Other Sectors & Investors
Of course, these industry verticals are just a handful of spaces in which businesses and other investors are putting their money in an effort to benefit from the coming IoT revolution.

In December, NXP Semiconductors completed its merger with Freescale Semiconductor, which Akbari said is the world’s largest IoT chip maker, for just under $12 billion. (That followed Intel’s 2015 announcement of its plan to buy Altera for $16.7 billion, and Avago Technologies’ move to buy Broadcom for $37 billion.)

This January, audio giant Harman bought Symphony Teleca for $780 million and Redbend Software for $170 million in an effort to penetrate the IoT space.

IoT platforms are another area that’s seen a fair amount of M&A action, noted Akbari. Indeed, PTC a couple years back acquired both Axeda and ThingWorx. Those companies were not too big, as ThingWorx at the time had less than $6 million in revenues, Akbari said, so it was not within the sights of private equity firms.

But private equity firms are hot for IoT as well.

“In private equity everybody is trying to acquire something in IoT,” she said.

Private equity firms, Akbari noted, look for businesses in the half a billion to $2 billion range. These are companies that are going through a growth stage but still need additional investment.

Of course, venture capital firms are also ploughing money into the IoT space, with Andreessen Horowitz and Kleiner, Perkins, Caufield and Byers among the most active on this front.

Among the other biggest IoT investors are consulting firm Accenture; microprocessor company ARM; network infrastructure supplier Cisco; Danaher; GE; Intel; and elevator and escalator company KONE.

Edited by Ken Briodagh

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