BMO on aquisitionJuly 23, 2021 | 19:59 ET | 19:59 ET~ Magna International MGA-NYSE MG-TSX Rating Outperform Price: Jul-23 $80.93 Target $115.00 Total Rtn 44% VNE Acquisition: High Growth ADAS Acquisition; Short-Term Dilution to EPS Bottom Line: Magna’s stock was down about 5% today after the Veoneer acquisition announcement and had been down more significantly when the stock opened this morning due to the notable dilutive impact on Magna’s earnings. We believe over time, investors will see the strategic rationale for the acquisition and how Magna’s strategic redirection into growth areas, such as ADAS, will enhance the longer-term growth prospects of the company. Ultimately, we believe this higher growth profile will be reflected in Magna’s valuation through a higher attributed multiple. Key Points On July 22, Magna announced that it has entered into an agreement to acquire Veoneer, a company previously spun-off from Autoliv's electronics segment. Veoneer is a supplier of advanced driver-assistance systems (ADAS) and safety systems. Magna is acquiring Veoneer for $31.25 per share, which represents an equity value of $3.8 billion and an enterprise value of $3.3 billion. Magna is paying a 57% premium to previous day's closing price and a 43% premium to the 30-day VWAP. We believe Veoneer is a strong strategic fit for Magna in terms of its ADAS capabilities and offerings. While Magna already has full systems capabilities in many areas of ADAS, its strength appears to be related to hardware, in areas such as cameras, radar, and LIDAR. With Veoneer's scale, human capital (3,800 engineers of which 1,700 are software engineers), and expertise in all the underlying ADAS software, the acquisition will significantly enhance Magna’s position as a major global player in ADAS. In particular, Veoneer has software expertise in sensor perception and drive policy, areas of ADAS related to active safety and vehicle automation that should experience considerable growth in the future. Currently, the ADAS market is expected to grow at a compound annual growth rate (CAGR) of 14% from $13 billion in 2020 to $46 billion in 2030. Based primarily on programs already awarded, Magna management expects the combined ADAS businesses of Magna and Veoneer to grow at a 30% CAGR from $1.2 billion in 2020 to $2.6 billion (mid-point of guidance) in 2023.