How to go from volume to value

On 26 July 2021, RCI Bank and Services, the Renault Group's automotive captive, acquired Bipi, a multi-brand car subscription platform for used vehicles, for a headline price of €100 million.

Tech – Bipi: Founded in 2017 in Madrid (Spain), Bipi is an online subscription-based car rental platform intended to replace traditional car ownership with a more flexible and seamless digital experience. Bipi is now present in Spain, France, and Italy. With 120 employees, it has serviced more than 10,000 customers in the last several years. The platform allows users to book cars, subscribe, swap, and cancel them at any point in time that enables customers to revolutionize the way they access cars. Customers can create a tailor-made subscription: they can choose the duration of use of the car, change the mileage and category of car based on their own needs.

Non-Tech – Renault Group: Founded in 1898 in Boulogne-Billancourt (France), Groupe Renault is a multinational automobile manufacturer. The company operates in 134 countries and has sold 3.7 million vehicles in 2019. Renault Group has 40 factories, 3 innovation lab and 6 technical centres around the world. Strengthened by its alliance with Nissan and Mitsubishi Motors, and its unique expertise in electrification, Renault Group comprises 5 complementary brands - Renault, Dacia, LADA, Alpine and Mobilize - offering sustainable and innovative mobility solutions to its customers. As of December 2020, the company reported revenue of €43.5bn.??

THE PATH TO SHIFT RENAULT GROUP’S STRATEGY FROM VOLUME TO VALUE

In 2021, Luca de Meo, CEO Renault Group, presented the group’s new strategic plan “Renaulution”, which aims to shift Renault Group’s strategy from volume to value.

The ultimate phase of this strategic plan is to pivot the business model to tech, energy, and mobility, making Renault Group a frontrunner in the value chain of new mobility. Besides, the company also set up three missions, which are (i) to have more time-use of the car, (ii) to have better residual value management, and (iii) an ambition to have a zero carbon footprint.

This strategic techquisition of Bipi shows that Renault Group understands the future of the automotive industry will likely shift gradually from one-time vehicle sales to recurring revenue. (The global shared mobility market size is expected to reach $1.2 trillion in 2028 with a CAGR of 25% (PwC)).

We expect the future of the car to be electrified, autonomous, shared, connected, and annually updated.

Apart from the potential decline of traditional car market, the consumers’ preferences are also changing rapidly. In a McKinsey survey, 34% of Generation Y consumers expressed a preference for rental and ridesharing products, as they feel it will be less risky to try out new brands with low-cost commitment.

Renault’s plans to maintain its market leader position can be supported by offering on-demand mobility and creating recurring revenue streams.

Source: Statista estimates; Data Bridge Market Research; 2021

Car subscription represents a market of the future which meets the demands of motorists and car drivers. BCG estimated the subscription market in Europe and the US could reach $30 billion to $40 billion by 2030—up to 15% of new car sales—based on volume of 5 to 6 million subscription vehicles.

RCI Bank and Services, the Renault Group's captive financing unit that executed the techquisition of Bipi, will be in a position?via Bipi to extend its range of flexible all-inclusive products with multi-brand subscriptions dedicated to used cars and particularly Renault’s “Mobilize” brand.

In addition, RCI Bank and Services can lever the design of subscription formulae for Mobilize’s activities to meet the diverse expectations of car drivers. As Frost & Sullivan has forecast, car subscription models will account for about 10% of all car sales by 2025. On this basis Renault can expect Bipi to broaden its car subscription business to consolidate its product offerings and capture more market share.

Following this techquisition, Bipi will be in a position to consolidate its existing markets and accelerate growth and expansion to countries outside France, Spain, and Italy.

“With RCI Bank and Services supporting the team financially and strategically, we will grow and consolidate our current markets and accelerate growth and expansion to new countries in Europe.”

-??????Hans Christ, Co-Founder and CEO of Bipi.

A successful integration of Bipi should enable Renault to enter the high-growth car subscription market and complete its range of offers with hyperflexible products, complementing the new “Renaulution” value chain of new mobility.

The used car business could also contribute to reducing the carbon emissions. Bipi, in turn, could benefit from Renault’s financial and strategic support, and resources such as RCI Bank and Services’ dealership partners. Overall, despite the headline price of an estimated 10x revenue, the techquisition appears to be a win-win option for Renault and Bipi to further grow their businesses.

CLEAR TRANSFORMATIONAL OPPORTUNITY

By acquiring Bipi, Renault will have access to car subscription demands and ultra-flexible car subscriptions, which is estimated to represent a significant share of the car financing market. The transformation opportunities are not only for RCI Bank and Services, but also for Renault Group as a whole.

RCI Bank and Services has financed more than 1.5 million contracts (for new and used vehicles) in 2020 and sold more than 4.6 million services. With Bipi, RCI Bank and Services will likely be in a position to be able to:

• Complete its range of offers with flexible products, together with the offers of leasing and loyalty products already offered by the group.
• Use Bipi′s strengths to develop car subscription journeys and offers in close collaboration with Mobilize and the dealers.
• Be equipped with a turnkey offer combining complete logistics in a 100% digital process to intervene rapidly on this buoyant market.

Renault Group will want to move fast to develop flexible subscription services in a simple, accessible way that meets the expectation of customers.

Bipi’s platform could provide Renault with access to the data of prospective customers to understand their tastes, preferences, and mobility behaviours, which can be applied to the design and manufacturing of its products to satisfy the dynamic needs of clients better than competitors.

Thus, this techquisition will not simply have impact on its car subscription business, but also will help the group to better utilise the market data to forecast the future consumer trends for the design and type of cars.

With Bipi’s technology platform, the Renault Group should make significant progress to realise its “Renaulution” strategic plan as a leader in the value chain of new mobility.

The techquisition aligns with Renault’s commitment to move from a car company working with tech to a tech company working with cars.

STRONG VALUE CREATION FROM TECHQUISITION

The market reacted favourably to the announcement, given the positive outlook associated with the transaction and Renault Group’s strategy to enter the car subscription market.

By the end of the week following the announcement, Renault’s share price had increased by approximately 5.1% compared to an increase of approximately 0.84% in the CAC 40, implying an addition of a net $386 million to Renault Group’s market capitalisation, effectively paying for the deal by 3x.

THE QUOTE

“The Renaulution is about moving the whole company from volumes to value. More than a turnaround, it is a profound transformation of our business model. We’ve streamlined our operations starting with engineering, adjusting our size when required, reallocating our resources in high-potential products and technologies. We’ll move from a car company working with tech to a tech company working with cars, making at least 20% of its revenues from services, data and energy trading by 2030.”

- Luca de Meo, CEO Groupe Renault

RCI Bank and Services acquisition of Bipi is an example of how a non-tech traditional incumbent is actively engaging in the journey of transforming itself to deliver greater value to its shareholders and customers by properly positioning itself for the future.

The essence of such a transformation unfolding is embedded in a strategy execution methodology we have trademarked and call Techquisition, which my firm, Aquaa Partners, has designed and delivers to its clients every day as an experienced and trusted partner.

You can learn more about why Techquisition is becoming the value creation strategy of choice today for ambitious C-suite leaders in my book, Go Tech, or Go Extinct, which dives deep into the topic:

Go Tech, or Go Extinct: How Acquiring Tech Disruptors Is the Key to Survival and Growth for Established Companies

Paul Cuatrecasas is the founder and CEO of the investment banking firm,?Aquaa Partners, and the author of?Go Tech, or Go Extinct?in which he shares his revolutionary approach to transforming legacy companies into forward-thinking industry leaders through the strategic acquisition of disruptive technology companies.?

Source(s): Aquaa Partners, company websites, Pitchbook, Tracxn, Capital IQ, LinkedIn, Frost & Sullivan, McKinsey, PwC, BCG