The businesses at the center of this shift share a profile acquirers prize: proprietary, hard-to-replicate technology; deep integration into vehicle platforms that creates real switching costs; and, in the best cases, recurring or royalty-based revenue that compounds with every vehicle built. Where a traditional supplier sells a part once, a software or embedded-technology business is often paid again and again over a program's life. That difference is the whole story — of the market, and of what these companies are worth.
The Car Is Becoming Software
Start with the size of the prize. McKinsey's Center for Future Mobility projects the global market for automotive software and electronics will reach roughly $462 billion by 2030, growing at about a 5.5% annual rate from 2019. The software slice specifically is the fastest-moving piece: automotive software revenue is expected to more than double, from about $31 billion in 2019 to roughly $80 billion by 2030 — a compound growth rate above 9%. Within that, software development alone represents an estimated $83 billion opportunity by 2030, and electronic and domain control units another $144 billion.
Behind these numbers is an architectural change. Vehicles are moving from dozens of isolated electronic control units toward zonal and central computing — the foundation of the "software-defined vehicle" (SDV), where features are delivered and updated in software, over the air, long after the car leaves the factory. That transition turns a car from a one-time sale into a platform that can carry connectivity, advanced driver assistance, and subscription features for years. It also decisively shifts value toward the companies that own the software, the algorithms, and the embedded IP.
Dealmaking Has Turned Technology-Led
The M&A data mirrors the shift in the product. In its 2026 Automotive & Mobility M&A report, Bain & Company found that more than half of all automotive deals in 2025 involved semiconductors, electronics, sensors, or software-engineering capabilities — the industry buying the very competencies the software-defined vehicle demands. Total automotive and mobility deal value exceeded $35 billion in the first nine months of 2025, and the average deal size rose to about $1.2 billion, more than double the 2023 level. Roughly 80% of volume were "scope" deals — acquisitions made to add a capability rather than simply to add scale.
The headline transactions make the pattern concrete. Chipmakers are buying their way into the software-defined car: NXP acquired TTTech Auto for $625 million to strengthen its SDV architecture and ADAS software, and Infineon bought Marvell's Automotive Ethernet business for $2.5 billion to deepen its in-vehicle connectivity and microcontroller portfolio. Alongside these strategic technology plays, traditional consolidation continued (American Axle's roughly $1.44 billion bid for Dowlais among them) — but the momentum, and the premiums, have moved toward technology.
"More than half of automotive M&A now targets chips, electronics, and software. The industry is buying the capabilities the software-defined vehicle demands — and paying up for them."
The Valuation Split Owners Miss
Here is where owners most often leave money on the table. Two businesses can supply the same carmaker and be valued in entirely different worlds — because a buyer is really pricing which kind of company it is looking at.
A conventional automotive supplier — selling hardware into cyclical vehicle programs, exposed to volume swings, margin pressure, and heavy capital needs — tends to trade below the broader market. By contrast, a software or embedded-technology business is valued on software economics. Across more than 600 disclosed transactions, software companies have carried a ten-year median M&A multiple of roughly 19× EV/EBITDA, and automotive software specifically trades at the top of the vertical-software range on a revenue basis (about 4.3× revenue as of late 2025). The middle-market average across all sectors sat at 9.8× EV/EBITDA in 2025. The gap between "priced as a parts supplier" and "priced as a software company" is often the single largest financial fact in an owner's life.
(hardware, cyclical)
(all sectors, 2025)
(10-yr median, software M&A)
EV/EBITDA, directional. These are different transaction populations and bases — a broad middle-market average, a long-run software-M&A median, and listed-supplier trading multiples — so they should be read as a ladder, not a like-for-like comparison. Sources: BDO (North American automotive suppliers, ~5× EV/EBITDA 2025E, May 2025); Capstone Partners (middle-market average); Aventis Advisors (software M&A median). What moves a company up this ladder is the subject of the next section.
"A business earning recurring, per-vehicle royalties is a software company wearing an automotive badge — and the market pays for software."
What Drives an Automotive-Technology Multiple
Two companies of similar size can trade several turns of EBITDA apart. What separates them is how software-like and how defensible their earnings are. The factors buyers reward most:
- Recurring and royalty-based revenue. A design win that pays a per-unit royalty across a program's build volume — accumulating on the installed base year after year — is the closest thing to an annuity in this sector, and it is valued accordingly. Recurring beats one-time every time.
- Design wins and "spec-in" position. Being embedded into a vehicle platform, and specified into future programs, gives a buyer visibility into revenue that is already awarded rather than merely hoped for.
- Proprietary, hard-to-replicate technology. Software, algorithms, and embedded IP that a buyer cannot easily hire or build — and that open doors to OEM customers and geographies — command the clearest premiums.
- Switching costs and mission-critical integration. Technology that is deeply integrated, safety-relevant, or certified is expensive to rip out, which protects the revenue and de-risks the deal.
- Exposure to funded, durable demand. Content tied to the structural growth of the software-defined vehicle — connectivity, ADAS, electrification, in-cabin experience — is valued more highly than exposure to flat, commoditized hardware.
- Leadership depth beyond the founder. A business whose key relationships and technical know-how run through one or two people carries a discount; a genuine second tier of leadership is worth real money.
- Priced as a parts supplier — hardware, cyclical, capital-intensive; valued below the broader market.
- Priced as a software / technology business — recurring or royalty revenue, embedded IP, high switching costs; valued on software multiples (software M&A ~19× EV/EBITDA, 10-yr median).
- The same underlying company can sit in either camp. Which one a buyer sees — and which one your process makes them see — is the biggest lever on price.
Who Is Buying
The buyer universe has never been broader, and that breadth is what creates competitive tension in a well-run process. Three groups are active:
- Semiconductor and technology strategics — the NXPs and Infineons of the world, acquiring software, connectivity, and embedded capability to build a full software-defined-vehicle stack.
- Tier-1 suppliers and OEMs — racing to own software and electronics competencies internally rather than depend on others for the defining content of the modern car.
- Private equity — building technology-focused platforms and, increasingly, targeting under-invested suppliers and non-core carve-outs in the middle market, where a great deal of specialized automotive technology actually sits.
The Tailwinds — and the Near-Term Reality
The structural tailwind is real and durable: the software-defined vehicle is a multi-year, capital-backed transition, and it is pulling money and acquirers toward exactly the software, semiconductor, and embedded businesses that enable it. That is why technology now accounts for the majority of automotive dealmaking and why the best assets command software-like multiples.
A credible read of the market also has to acknowledge the split screen. The legacy, hardware-heavy side of the supply base is under genuine pressure — margin compression, the costs of the EV transition, warranty and recall exposure, and cyclical volume risk — and valuations there reflect it. The two stories are pointing in different directions at once: commodity hardware is being squeezed, even as software- and SDV-exposed technology is bid up. For an owner, that divergence is not a reason to wait or to rush on reflex — it is a reason to understand precisely which side of the line your business sits on, and how to position it accordingly.
What This Means If You Own an Automotive-Technology or Embedded Business
Put the pieces together and the path is clear. You operate in a large, fast-growing, essential market that is consolidating around technology, with more categories of well-funded buyer than ever — strategics, tier-1s, and private equity — and the best of them are paying software multiples for the right assets. But those buyers are discerning, and the difference between a supplier-grade outcome and a technology-grade one is made long before a term sheet appears.
The owners who realize the top of these ranges tend to do the same things: they document their recurring and royalty revenue and show how it compounds on the installed base; they evidence their design wins and spec-in position so future revenue reads as awarded, not hoped for; they make the technology and IP legible to a non-specialist buyer; they build leadership depth beyond the founder; and — most decisively — they run a competitive process that puts strategic and financial buyers in genuine tension, rather than negotiating with the one acquirer who happened to call. In a market this active, that tension is what moves a company from a supplier multiple toward a software one.
"In this market, competitive tension is what turns a 'parts supplier' valuation into a 'technology company' valuation — a single inbound offer almost never is."
Conclusion
The automobile is being redefined in software, and the capital markets have noticed. For owners of the software, semiconductor, and embedded-technology businesses inside the modern vehicle, valuations for the right assets are compelling and the buyer universe is broad and motivated. But it is also a market where the spread between a good outcome and a great one is wide, and where the difference is made through preparation and process — by ensuring a buyer values what you have built as the technology business it is, not the parts supplier it resembles from the outside.
At Trident, this is the work we do — senior-led and focused on the lower middle market, with advisors who understand both the technology and the industrial reality of this sector: helping owners establish what their business is truly worth, prepare it to command the top of its range, and run a disciplined, competitive process that discovers the best buyer and the best price.