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Thoughts on SoftBank's acquisition of Cubic Telecom

DEC 07, 2023 | Matt Hatton
region: ALL vertical: ALL Internet of ThingsHyperconnectivity

The big news in IoT connectivity this week was the announcement that SoftBank was acquiring automotive-focused MVNO Cubic Telecom at a staggering valuation of EUR927 million. This blog post examines the deal and what the implications might be.

A strategic play, not an investment

The first thing to note is that this is not an investment from the Vision Fund which had holdings in all sorts of technology-related ventures. This is SoftBank Corporation, the Japanese mobile operator. As such it is a strategic investment to better address the core part of the global IoT market in which Cubic sits (and where doubtless SoftBank would like to play): connected vehicles. Cubic’s capabilities span both IoT MVNO and an automotive-oriented middleware platform. The press release even references SoftBank’s ‘Beyond Japan’ initiative and using Cubic as a partner to achieve that.

Cubic famously has Audi as a major customer and its parent Volkswagen Group holds a stake, but it hasn’t been able to extend that initial vote of confidence from a major OEM into supporting a broader range of car makers. SoftBank will hope that it can achieve that, particularly with Japanese OEMs.

Keeping up with the Joneses

In recent years, both of SoftBank’s main mobile network rivals in Japan have acquired MVNOs. NTT and KDDI acquired Transatel and Soracom, respectively. Both were with the intention of using an MVNO to address out-of-footprint opportunities. In some cases this has been quite effective, something which SoftBank has probably noticed.

The idea of telcos ‘harnessing MVNO energy’ by acquiring them is something that we have talked about quite a bit. We examine these trends in quite some detail in our annual Communications Service Provider IoT Peer Benchmarking report and I commented recently on the market consolidation involving IoT MVNOs.

We should note that this isn’t SoftBank only foray into working with global MVNOs. It has taken an equity stake in 1NCE and is providing support for 1NCE in addressing the Asia-Pacific opportunity.

How much!?!

Let’s dig a little into the figures. The deal, which involved SoftBank taking 51% of Cubic Telecom for EUR473 million, values Cubic at EUR927 million. The first reaction is: wow! That’s a quite staggering 16 times revenue and 152 times EBITDA. SoftBank is not buying Cubic Telecom for its business today. It’s buying it because it’s planning to use it as a vehicle (pardon the pun) to pursue the global IoT connectivity market more aggressively. Specifically going after connected cars. Which is understandable as it’s the biggest cellular IoT opportunity, it’s relatively concentrated in a small number of auto OEMs, and many of them are HQ-ed in Japan.

Cubic Telecom claims 17 million vehicles connected and had 2022 revenue of EUR56.3 million (with EBITDA of EUR6.1 million and loss of EUR6.1 million). That equates to an annual revenue per connection of EUR3.31. According to Transforma Insights’ IoT Forecasts the number of connected vehicles stands at around 350 million today globally, so Cubic has around 5% of the market. We expect the market to continue to grow reasonably rapidly, hitting 1.1 billion devices in 2032. And that’s just connected vehicles, but let’s assume that’s what the focus will be. If SoftBank/Cubic was to increase its market share to 20% (a big ask!) that would equate to 220 million vehicles. Assuming some erosion in revenue per connection over the period, that might look like an annual revenue of EUR500-600 million.

In that context, the valuation of EUR927 million maybe makes a little more sense, although there’s a long way to go.

But is there more to it?

One of the notable things about the deal is that the named SoftBank board member for Cubic is Daichi Nozaki, who amongst other things is COO and Director of Aeris Japan. This naturally set our spider senses tingling. We have considered that the Aeris deal to acquire Ericsson’s IoT Accelerator and Connected Vehicle Cloud (something about which I’ve commented a lot) might be a precursor to a bigger roll up. But that also raised the question of who else that might involve. SoftBank is a not unreasonable candidate. It’s clearly now focusing tremendously on the connected car space, which is obviously going to be the #1 vertical focus of the new Aeris. It already had credibility in the space and the Ericsson components are also strongly skewed towards that. Furthermore, SoftBank is a member of the Bridge Alliance (which uses IoTA as a common platform).

And we should also note that the aforementioned Mr Nozaki sits on the Advisory Board for 1NCE. There's certainly an interesting overlapping and interlinked set of companies that have a comprehensive collective set of capabilities.

This could be 2 + 2 = 5. But we’ll certainly keep an eye on it.

Connect with us to discuss further

That's all I'll share on a public blog post. If our clients would like to connect to discuss our further perspectives on the deal we would be happy to engage. We also note that we have a revision coming out later this month to our very popular 2021 IoT MVNO Market Landscape report. We'll be sure to update the Cubic profile!

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