Greetings everyone, and welcome to the Magna acquisition of Veoneer. During today's presentation, all participants' lines will remain in a listen-only mode. Afterwards, we will conduct a question and answer session with instructions to follow. If at any time during the conference you need to reach an operator, please press star zero on your telephone. Please note today's conference is being recorded Friday, July 23rd, 2021. It is now with pleasure that I turn today's presentation over to Mr. Louis Tonelli, VP of Investor Relations. Please go ahead, sir.
Thank you, Bridget, and good morning, everyone. Joining me today are Swamy Kotagiri, CEO, and Vince Galifi, CFO. We issued a press release yesterday announcing that we've signed a definitive agreement to acquire Veoneer. You'll find the press release, today's conference call webcast, and the slide presentations to go along with the call, all in the investor relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of securities legislation. Such statements involve certain risks, assumptions, and uncertainties which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to yesterday's press release for a complete description of our safe harbor disclaimer. Let me pass the call over to Swamy.
Thank you, Louis. Good morning, everyone. I'm excited to be able to speak with you about a compelling transaction for Magna, the acquisition of Veoneer. That will position our ADAS business as a global leader, combining our complementary business strengths and broadens our product portfolio, capabilities, customer base, and geographic presence. Veoneer adds significant engineering and software expertise. As a result, this transaction enhances our full ADAS system capabilities and feature functionality and accelerates our content per vehicle opportunities. We also gain a leading global position in Restraint Control Systems, a business with strong electronics expertise. This acquisition is consistent with our go-forward portfolio strategy that we communicated to investors back in April, namely accelerating the deployment of capital towards high growth areas, in this case, ADAS. The transaction provides benefits to a number of key stakeholders.
Our strong balance sheet and cash flow can provide added confidence to customers that we can execute on upcoming growth plans and continue to invest in new technologies and programs. The leadership position in ADAS of our combined business, together with Magna's overall scale in the industry, offers exciting opportunities for Veoneer's employees and supplier partners. The increased software and overall ADAS competence further strengthens our overall vehicle systems capabilities and our positioning in future mobility, which is good for employees from both companies. Overall, the transaction is expected to create long-term value for Magna shareholders. Let me get into some of the details. First, I briefly cover Veoneer's business profile. Veoneer is a leading supplier of automotive safety technology. It has 7,500 employees worldwide, working at five manufacturing locations and 25 technical centers in 11 countries. Veoneer's pro forma 2020 sales were $1.3 billion.
In active safety, Veoneer has extensive capabilities, including camera, radar, and driver monitoring systems, as well as domain controllers. Veoneer's Arriver platform offers a complete software stack. On the passive safety side, its Restraint Control Systems is a profitable business with a global leading position. As I said earlier, our businesses are complementary. We have a one particular strength in camera-based systems, including front, surround view, rear view, and in-cabin monitoring. We also have key developments ongoing and program awards in other technology areas, including radar, where our ICON digital technology provides significant potential benefits, solid state LIDAR, compute, in general, whether it's ADAS ECUs or domain zonal controllers, and ultrasonics. Veoneer is also strong in front camera systems and has developed night vision camera technology.
Veoneer has a solid market position and development and manufacturing experience in radar, as well as capabilities in other areas such as driver monitoring and domain controllers. Veoneer also has perception and drive policy software through its Arriver platform. We expect the two businesses combined to be among the leaders in camera and radar systems technology, which represents the two largest total addressable markets in ADAS today and in the future. We also expect the combined business to be poised for significant growth in domain controllers as that market develops. Veoneer would provide Magna with leading function, development, and software expertise, in particular, strengthen positions in areas such as perception software and premium features and functions, as well as engineering infrastructure. Our combined comprehensive capabilities would cover the entire ADAS spectrum with a number of strong market positions.
Included in the appendix is a bit more detail on our complementary ADAS capabilities. This transaction provides additional electronics engineering expertise. Adding Veoneer's over 3,800 engineers enhances our resources in the evolving ADAS arena and can also support Magna's broader mobility activities. In particular, Veoneer's over 1,700 software engineers significantly strengthen us in a critical area and positions Magna at the forefront of ADAS. This acquisition also expands our business with major customers and provides access to new customers and regions, including in Asia. This should drive good sales diversification for the combined business by customer and by region. Overall, the combined business better positions Magna as a full-system ADAS supplier, which should accelerate content per vehicle opportunities for our ADAS business. It also allows us to explore additional possibilities across the company, for instance, in connected powertrains, and better positions Magna's overall business.
With that, I'll pass the call over to Vince to cover additional details on the transaction.
Well, thank you, Swamy, and good morning, everyone. I'm also excited about the opportunity that this acquisition brings in an important and growing segment of mobility. Let me start by covering the growth opportunities expected in the ADAS market. Overall, the market is estimated at around $13 billion last year and is expected to more than triple over the next 10 years, expanding at a compound annual average rate of about 14%. Camera and radar technologies represent the largest part of the market currently and will remain so over the next 10 years. Domain controllers are expected to be among the fastest-growing areas and should be the third-largest element of the addressable market by 2030. In each of these three areas, our position would be strengthened as a result of this transaction.
Based on outlook disclosures made by each company earlier this year, our combined business is expected to grow at a compound average growth rate of about 30% out to 2023, roughly twice the pace of the ADAS market. This reflects a solid book of business across multiple products, features, customers, as well as regions. This compares to about a 20% growth rate expected for Magna's standalone ADAS business over the same timeframe. Let me review some of the transaction details. The total consideration for the acquisition of 100% of Veoneer's equity is $31.25 per share, payable in cash. This represents an equity value of about $3.8 billion and an enterprise value of about $3.3 billion. The transaction, which we expect to close near the end of 2021, is subject to Veoneer stockholder approvals, certain regulatory approvals, and other customary closing conditions.
I'm happy to say that Veoneer stockholders representing approximately 40% of Veoneer's outstanding shares intend to vote in favor of the transaction. The transaction enhances Magna's sale growth profile with more than 50 basis points improvement per year through 2023. We anticipate the transaction will be accretive to earnings per share, excluding purchase price amortization in 2024. We expect annual run rate cost synergies of about $100 million by 2024. While the acquisition is expected to be dilutive to earnings in the first couple of years, we expect to realize the benefits of the investment over the mid to long term, positioning the company in an important market segment. All in all, we expect to create long-term sustainable value for shareholders with this transaction. We plan to fund the transaction with cash on hand in our combined businesses and some additional debt.
We anticipate an adjusted debt to adjusted EBITDA ratio slightly above the high end of our target range on closing. However, we believe we will be within the target range by the end of 2022. As a result, we expect to maintain our strong investment-grade credit ratings. Some of the key areas in which we have identified synergies include SG&A, procurement, development activities, manufacturing, and in the case of cash savings, taxes. We have an integration team identified that is highly focused on realizing the synergies. Key next steps for the transaction include our integration team initiating dialogue with Veoneer.
Employee engagement, including information sessions to welcome employees and inform them about Magna. Veoneer will establish a date for a special meeting of its stockholders to vote on the transaction and the initiation of regulatory filings in the various jurisdictions in which the two companies operate. In summary, this transaction positions us as a global leader in the fast-growing ADAS market. Combining our complementary businesses strengthens and broadens our product portfolio capabilities, customer base, and geographic presence. As a result, this transaction enhances our full ADAS systems capabilities and accelerates our content per vehicle opportunities. We're also gaining a leading global position in Restraint Control Systems. The acquisition is consistent with our go-forward strategy to invest in high-growth areas, and it creates long-term value for Magna shareholders. I want to thank you for your attention this morning.
Swamy, Louis, and I will be happy to answer your questions.
Thank you very much. We do welcome all questions or comments. To register, please press one four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered or you would like to withdraw a registration, please press one three. Again, to register questions or comments, please press one four on your telephone. One moment, please, for the first question. Our first question comes from the line of John Murphy of Bank of America. Please proceed with your question.
Good morning, everybody. Can you hear me?
Yes. Good morning, John.
Good morning. Just a first question on strategy. Some of the industrial logic here, it seems like it makes a lot of sense, and we certainly agree with your business structure. Veoneer certainly had a view that this high-growth company should be a standalone entity for many reasons, to isolate value and potentially raise capital at lower costs. I'm just curious, as you think about that reversal in strategy, which was not yours, but why you think that might be happening. Also maybe from a Magna perspective, why is this the time to acquire this company? Obviously, it's been public for a while, so you could have had shots at it in the past. I'm just curious why now as well from your perspective.
Hi, John. Good morning. This is Swamy. This is a fast-growing area. Scale and synergies where possible is important in such a fast evolving technology area. I believe this transaction addresses that exactly. We talked about our strategy from a One Magna system perspective, whether looking at ADAS or a powertrain or a body structure system by itself. Looking at the overall vehicle holistically. Our belief, we have been communicating that it's important for us to have that overall view. There is more to be had in having those synergies and interface understanding of various systems. How do we bring it all together and explore opportunities that wouldn't be seen if it was a completely independent entity? The businesses do operate in a very focused way so that they understand the roadmap and what needs to be done in each area.
There is also a lot to be said about looking at the interfaces and looking at the overall thing. We have been very focused and deliberate. We have looked at various targets. I wouldn't say this is only recent. We have looked at this in the past, and I would say the discussions have been pretty much most of 2021. If you look at the complementary aspect of product geography and how the technology and what's evolving, it just happened to be happening now, but the thought's always been there, looking at various aspects.
Okay, that kind of leads to a second question. Obviously, it looks like that Veoneer probably would have needed to raise capital going forward. Obviously, with your resources, that's no longer an issue. I'm just curious, maybe more broadly on resources at the company. As you think about becoming part of the Magna family, over time, you're going to have these 3,800 engineers plus and 1,700 software engineers. As you fold them into Magna with capital and other human capital surrounding them, is there the opportunity to potentially even accelerate this more than what you're talking about between 2021 to 2024? 2024, there's not that much you can affect in significant change on business. Obviously beyond that, because of programs, I would imagine you could probably do a lot.
How much do you think that they may have been resource-constrained and becoming part of the Magna family unleashes that and potentially even accelerates the growth further?
I'm excited about the potential, as you mentioned, John. I think one of the key things in this area is to have the right talent and the right amount of talent. If you just look at bringing the two businesses together, like you said, we see a lot of opportunity in being able to address a much broader breadth of the program spectrum. Like you said, the timing is going to be important, but we see a lot of very active discussions on that topic. Not only that, I think if you look at what expertise comes along with it, what we can do in other areas from a feature functionality perspective is also something to look at. I definitely believe there is an upside potential as we talk to customers. The initial reaction from the customers has been very positive and proactive.
Yeah. Swamy and I just wanted to add something as well, John. Swamy's talked about the kind of the technology and the positioning, but also from a balance sheet perspective. We've talked about this in the past, having a strong balance sheet at Magna and lots of cash flow generation is a real positive when it comes with customers and customer awards because they sense and they know the stability that sits in our organization. I think that alone also is going to create opportunities that potentially wouldn't be available as a standalone company to Veoneer.
I have many questions, but I'll just ask one last one and turn it over. The restraint side of the business is not getting a lot of airtime here. You guys are obviously the masters of scale and technology. Is there any opportunity on that side to potentially grow that business and maybe generate more cash from that core or less growthy side of the business that might be sort of a stealth benefit that's getting lost in the shuffle here?
John, like you said, Arriver is a strong profitable business for Veoneer and also has a market-leading position and solid track record within the passive safety products. That part of the business also has a global engineering and manufacturing footprint and is pretty integrated with the ADAS business. There are interdependencies with the rest of the business, but we'll have to explore further once we close. It also brings a DNA of a quality and safety-related mindset, which combined with Magna's operational experience and scale, like you said, we also see that to be a strong area going forward.
Okay. Thank you very much, guys.
Our next question comes from the line of Chris McNally of Wolfe Research. Please proceed with your question.
Oh, sorry, was that for Wolfe Research?
Yes, sir.
Yeah, sorry. This is Shreyas Patil on for Rod. Just two questions. Number one, when you look at the ADAS market growing to $27 billion by 2025 and $46 billion by 2030, what are you expecting or what are you seeing in terms of penetration rates for L1 or L2 ADAS systems? How are you thinking about the more advanced L2+ or even L3 over those periods?
One of the key things here, Shreyas, is our focus is on the L2 Plus or up to L2 Plus. If you look at it's a little bit of a crystal ball, but from the L1, L2 Plus perspective, we see a significant penetration from where we are today. I think Vince mentioned some of the numbers from an overall market perspective. I think we see a lot of that in the premium mid-segments, but I think it'll continue and proliferate a whole lot more going forward into pretty much all the segments. I think there is a huge market to be had there, and that's where the focus is right now. I think this transaction enhances that system capabilities to be able to address all variants from L1 through L2 Plus.
There's a whole discussion about the L3 definition, but really advanced driver-assist functions is how I would characterize it. For L4, L5, I still think it's a little bit of a long road, and it's a small number in terms of the vehicles produced globally in 2030 that will be full L4, L5. In a different stage years and creates a new business models for sure, but not from a normal context of things as we see. We are monitoring that, and as you know, we have participated with Waymo, and we continue to look at that.
Okay. You've talked about this in the past. I mean, Magna has a strong existing relationship with Mobileye. You've been working together since 2007. You do have programs in the pipeline that will be incorporating Mobileye's vision systems. However, we've seen in the past, Mobileye has refused to work with companies that design or sell their own vision systems, which Veoneer is currently doing. How should we think about that relationship going forward?
The software stack, which is the Arriver today, has been run as a separate independent entity with Veoneer. As we stand today, our intent is to do the same. Like you said, among the Tier one ADAS suppliers, we have the longest relationship with Mobileye, having worked on many successful programs. Our intent is to continue to work with them, but we have to look after closing, how we go along with it and figure out the relationship. Our intent is to continue the strong relationship we have.
Okay. Just one quick one. You talked about Veoneer being accretive to Magna earnings by 2024. What does that imply in terms of how you see Veoneer's standalone profitability by that period, and how should we be thinking about the impact of purchase price amortization?
Yeah. Thanks, Vince. In terms of Veoneer, we're not going to be able to comment specifically on their outlook and their numbers. They've got some public disclosure. I suggest you refer to that. When I think about the overall dilution at Magna, we haven't given EPS guidance, obviously, for 2022 or 2023, but I think big picture, just to kind of frame it up, if you put the two businesses together, build in our synergies, which are pretty significant, and we're excluding PPA, which by the way, is still kind of a target we got to work on, and that could still move around. I think about 2022 EPS dilution is going to be less than 10%, with a significant reduction in dilution in 2023, and then accretive for us in 2024.
From a PPA standpoint, we've got to get all the experts to kind of look at all of this and figure out what buckets goes in what buckets. From my perspective, that's a non-cash charge. I think we should be looking at what this business would be on a continuing combined basis, and those are the numbers I've kind of quoted.
Yeah. Any just roughly how to think about PPA? I know you're still working on it, just for modeling purposes.
I'm just trying to get a piece of paper here. Kind of look at Veoneer's balance sheet at the end of Q1 they disclose. If you back out goodwill and intangibles on their books, their net identifiable assets are just under $800 million. If we've got a purchase price of $3.3 billion enterprise value, there's just a gap that needs to be allocated. Again, we have not done the work yet, but obviously some of that's going to go into tangible assets, some of that's going to go into intangible, some of that's going to go into things that don't get amortized. We'll just have to work through it. Just don't have all that information and all that analysis completed at this time.
Okay, great. Thanks so much.
Thank you. Apologies, that was Rod Lache of Wolfe Research. We will now go to the question coming from the line of Chris McNally of Evercore ISI. Please proceed with your question.
Hey, team. Thanks so much. A two-part question, and the first is a follow-on to Wolfe's question. Clearly, I think the main question is maybe not around your relationship with Mobileye, but probably around how the vision tech for existing programs at Veoneer will get migrated going forward. I think it's clear radar, thermal, DMS, it's clear complementary and it's going to bring scale. For that same logic, how do we migrate the existing customers over to Mobileye vision over time? The second question is, it's somewhat clear that I think Veoneer had some issues and had some key risks when it comes to two of their main key vision customers, Daimler and Volvo. Could you just comment how you incorporated those risks into the forward assessment of their long-term ADAS potential?
Good morning, Chris. We cannot comment specifically on the customer breakdowns or conversations. If you just look at the overall architecture, I think the software stack and the hardware, there is obviously an interface, and we work through it. The software stack and the architecture piece of it is obviously a customer decision, as they think through the process as well as how they source it. When we look at different aspects, you talked about DMS, you talked about surround view and rear view systems and so on and so forth. There is different aspects of the software, which is either perception or feature functionality that is there, even in driver monitoring systems. We are able to do that today, right?
As we talk about the future programs, we are really looking at the building blocks that we always talked about, and having that modularity that is required to make the system architecture as well as the development time as efficient as possible. I think if you just overall look at it, we expect to be among the most comprehensive camera vision capabilities in the industry. I'm pretty optimistic about it, and as I said before, talking to various customers, the reaction has been very positive.
Okay. Great. Then just a final one. Could you talk a little bit how much this was a negotiated deal versus a competitive bid process, I think has been brought up a couple of times. Obviously, Veoneer's been out there for a really long time. If you could just talk about that from a deal perspective. Thank you.
Yeah, Chris, it's Vince. Good morning. Veoneer, as Swamy talked about earlier, and I think a response to question has been on our radar screen for quite some time. I think as we looked through the transaction and we made contact with the team, certainly everyone understood the complementary nature of both of our businesses. I think you're going to see, I know you probably will see a lot more detail on how this all came together in the proxy, the merger proxy. At this point, I really can't give more color than that.
Okay. Appreciate it, team. Thanks.
Our next question comes from the line of Peter Sklar of BMO Capital. Please proceed with your question.
Okay. Thank you, operator. Good morning. Swamy, as I look at the map that you provided in the presentation showing where the capabilities of the two companies are, there's a lot of complementary overlap, particularly as I look at the chart in camera systems and radars and domain controllers. Could you provide maybe some specific examples or in some of the more important areas, how this is complementary to Magna, rather than redundant to your current capabilities? Because this is a product profile where already Magna had progressed well down the road. If you could just maybe pull a couple of examples to explain that.
Absolutely. Good morning, Peter. You talk about the overall system, I think a good example would be a radar. We talk about the Veoneer experience and production as well as development, they've been at the corner radar and the mid-range or the short-range radar have been in production for a long time, and millions of units in production and on the road. We, as Magna, have talked about the ICON digital radar going forward, which is a step function. If you put the two together, now we have the manufacturing development feature functionality experience and a roadmap as a next step going forward in the radar roadmap. That's one good example. If you now talk about the camera side of things, you're right, Magna had a great position as we sit here today.
Now look at the Veoneer and bring the two together, whether it's mono or whether it's stereo camera systems, whether it is driver monitoring system in terms of awarded programs, plus the ones in discussion as scale. If you take the complementary nature of being able to bring other products like the mirrors, like we talked about into ClearView, that additional perception drive policy software, the stack, and just the experience of having the feature functionality and the skill that comes together, I think, makes this platform really complete. Like Vince talked about, gives us a chance to leverage this platform to get scale on a lot more programs on what's there in the market that we know. There is also now the geography and the other customer base in Asia, which further enhances the rationale for what we're talking about.
Okay. Thank you. Vince, can you talk a little bit about how Magna assessed valuation? I think that's the first time I can recall where you've bought a company that isn't currently generating EBITDA, though it sounds like you expect it to be accretive within a couple of years. How does Magna satisfy itself on what an appropriate valuation is to pay for the company?
Yeah, Peter, good morning. Let me just remind you, when we, I think, did Getrag five years ago, five or six years ago, it also was dilutive to earnings per share. The fundamental approach to doing any investment at Magna is the same, has been applied in this case over here. You've heard me talk about, I think where you create value is where you generate a return that's more than your cost of capital. DCF is the way that I look at things, whether we're quoting on a program, whether we're looking at productivity capital to improve efficiency in our operation, or whether we're looking at an acquisition.
In this case over here, you kind of sit back and you look at the growth profile in Veoneer, the prospects that brings from a synergies perspective, and you take an appropriate discount rate and you take risk into account, and you look at that and A is greater than B. From a financial perspective, I'm confident this creates value for our shareholders. What doesn't go into the equation is some of the softer things that we've talked about in our presentation. As you put the two together. What additional opportunity is there because Veoneer now becomes part of Magna? We've got more full systems capability. What opportunities does that bring to other parts of our business, and what opportunities does it bring to our ADAS business? We're a stronger balance sheet, combined resources, lots more capabilities, and that has not been quantified in our DCF model.
We just really looked at the financials. That's how we came about from a valuation perspective. As I've always said, earnings per share is important to all of us, but I think if we make the right decisions and we position ourselves well in a growing market segment, that creates, I use the words, long-term sustainable value for shareholders.
Okay, thanks. Just lastly, given that the acquisition will just nudge you above the target capitalization ratio for the company of 1.5, can you just talk a little bit, should we expect you to slow down a little bit on the NCIB until you get back within the range, or do you have the cash flow both for the NCIB and to bring you back within the target range of 1- 1.5?
Yeah, Peter, I'd say that we're going to just nudge slightly above the 1.5x and on a pro forma basis, we look at if this thing closes in 2021. In 2022, we'll be in our range. We've always talked about our capital allocation philosophy is, one, invest in the business organically and inorganically, pay dividend that grows over time. To the extent we have excess liquidity, we buy back the stock. Given where we are with this transaction, we're going to shut down the buyback for the balance of 2021. As we get into 2022 and we're looking at now getting in the mid-position of our overall range, we're going to sit back as a team and say, "What are the opportunities we have.
Do we have excess liquidity? If we have excess liquidity, we'll start buying back stock again. The philosophy hasn't changed at all on what we do.
Okay. Thanks very much.
Our next question comes from the line of Dan Levy of Credit Suisse. Please proceed with your question.
Hey, good morning. Thank you. I want to go back to just the question on scale and market leadership. Obviously, we can see that when you add the revenue of your active safety business with Veoneer, and just based on some of the comments, it implies something like shares in mid-teens. I'm wondering, to gain true market leadership, is it as simple as just having more software engineers? What is it exactly that the deal is doing that's going to make you better positioned when bids are going out?
Good morning, Dan. A couple of things that I talked about is just looking at the efficiency of the development cycle and the development resources and being able to leverage a given platform into various programs, right? That is one aspect of it. If you look at the different, whether it's driver monitoring system or surround view or the overall system like we're doing in some cases, the entire sensor suite, the compute, as well as possibly feature functionality in a different model going forward. I think once we are able to supply components or pieces or the entire system, but more importantly, have the system understanding that is completely there, will bring us to the table at a different level.
I think the OEMs, the customers are looking at the suppliers to say what capability do they have and what platforms can be leveraged, so that we can get the synergies as we are launching different variants of the vehicles. I would say those are some of the key fundamental reasons besides some of the things that Vince already talked about, the strong balance sheet, the stability of the company, the operational excellence. Also, I think it's important as we're talking to the new entrants and even our customers today to show that we understand not just the pieces of ADAS and not only the ADAS, but also how it fits into the overall evolving architecture of the vehicles going forward. I think all of this holistically is what we believe definitely going to create a lot of opportunities.
Great. Thank you. Then a follow-up. I think we've seen more recently automakers really taking a more active role in shaping their own ADAS content, and you can go down the line of some of these L2+ programs. Automakers are just doing a bit more as opposed to the old model of relying purely on tier 1 or tier 2 suppliers. Maybe you could give us a sense for how the potential risk of insourcing factored into your process of choosing to do this deal.
Yes, Dan. I think just like any other system, there is a base layer and a middle layer and an application layer. The architect of the overall system and what the consumer should feel and experience is defined and specced by the OEM. I think having the ability to leverage the non-discernible part to the consumer of the middle and base layer, I think is what's going to get scale. The application layer, which is the brand differentiation and the touch and feel and experience of the consumer, definitely is going to be driven by the OEM. For us to be able to understand and create that scalability and modularity is going to be really important.
Just like any other systems, in different OEMs, different strategies, in some cases we see subsets, in some cases, we see the entire system being sourced, and we have to be ready for all of that. Knowing the entire system and being able to do all of it as and when needed is definitely important. Also on a side topic, the testing and validation and efficiencies in pre-integrated solutions, the base software and middleware, all of these are going to provide a huge benefit as we see when the two businesses come together.
Great. If I could just squeeze in one more. Are there any parts of the business that you may need to consider disposing to get required regulatory approval? I know you have some overlap on front-facing cameras.
Dan, I cannot comment with certainty, but as we went through it, we don't see it. It's going to be a leadership position, but not to a point where I would say there are three or four at least, competitors. The idea is to have a relevant leadership position, but I don't think it, at least in our view at this point, we see that to become a regulatory antitrust issue.
Great. Thank you.
Our next question comes from the line of Mark Delaney of Goldman Sachs. Please proceed with your question.
Yes, good morning, and thanks for taking the question. I wanted to talk about the R&D outlook and drive policy software in particular, for the whole industry has been requiring a lot of R&D dollars, and it's an area that's been seeing increasing levels of investment from a lot of the industry participants. I know you talked already about some synergies that you think the combined portfolio can have, but maybe you can talk about how you see the gross investment requirements evolving, especially around the software stack?
Hi. Good morning, Mark. Maybe it's a little bit too early to talk specifics about the combined R&D spend, but also, at least in my viewpoint, we have been separating the, what I call the driver assist functions and the, call it the L4, L5 full autonomy. If you've seen in the past, we've said that we expect to have on average about $600 million in engineering spend in the mega trend areas, including autonomy over the next three years. Our focus really is on what we call up to the L2+. That is the area where we see a lot of proliferation. What you talked about, the industry spend obviously is at a different level on the perception and other things when you talk about full autonomy.
Our focus would stay on the platforms and the feature functionality that we need to provide for up to the L2+. To the extent we see the synergies in the platform and how this comes together, I think we'll be able to leverage and proliferate into more programs. We see a lot of synergies in the co-development activities from bringing these two together.
Okay. That's very helpful. Thanks. For a second question, to follow up on what Dan Levy was asking around OEMs trying to take on some of this capability themselves, but also, in many cases, still wanting to work with tier one suppliers such as yourselves. Can you talk about how you envision customers buying from you in the sense of, do you think it'll be, in many cases, providing a complete ADAS systems, including software and a full set of hardware sensors, domain controllers and such? Do you think it's going to be more of a partnership and selling individual parts of the system and more collaboration with OEMs who are trying to do a lot of it themselves?
I think Mark, like I said, I think we are going to see a combination of all, right? In some cases, just looking at the architectures itself, there are some that are zonal, some are central, some are peripheral at the sensor level. As a capable tier one, you have to be able to do all of those. We can do all of those only if we understand the entire system and how the market's looking at it, so we can develop the appropriate platforms and do it in a way that we can flex and be scalable and modular. Even though they might do domain controllers or sensors or different parts of the system separately or the entire system, I believe it's extremely important to be able to do all of it and be able to supply, knowing that it might not be the entire system every time.
Understood. Thank you.
Thank you. Our next question comes from the line of Colin Langan of Wells Fargo. Please proceed with your question.
Oh, thanks for taking my question. The combined business, I think, will have $1.2 billion in ADAS revenue. I think based on the market size for ADAS, it looks like it's going to be a high single-digit. Where does that put you in terms of sort of the global landscape? Are you sort of number three now, number four in ADAS? Because typically, I think you're usually number one or two in most of your segments. How far behind would you be to the leaders in the space?
I don't know if we can exactly put a number, but I would say we'll be in the top five. Louis, maybe you can comment on that. The important thing is if you have the right product and the right presence and the right capabilities, it's a really fast-growing market, and the addressable market is significant. At the numbers that you mentioned, I don't think there is a large gap in each of the players, even in different positions. I think they'll vary back and forth a little bit, but I would say we'll be in the top five.
Yeah, I'd agree with that.
Got it. I'm not sure whether you comment on this, but I think Veoneer has said they're guided to an operating profit in 2023. You see $100 million in synergies by 2024, but it won't be accretive till 2024. Is the difference just the purchase price amortization, or is there anything else that we should be considering impacting sort of that accretive outlook?
Colin, it's Vince. From our perspective, I guess there's a couple things. One, you got synergies, obviously, that we're gonna realize over the next three years. We also have some integration costs that we factored in. They amount to about the annual or run rate of the synergies when we get out to 2024. Those costs are gonna be front-end loaded in terms of trying to achieve those synergies. It's the net of the two. My comments were that you can kind of work kind of backwards and figure out where we are. I did say 2022, dilutive, less than 10%, but a significant reduction at dilution in 2023, and then incremental in 2024. We're seeing a quick improvement in overall results at the Magna level, including synergies and integration costs.
Got it. Just one last one. Any color on the cadence of $100 million in synergies? Is a chunk of that going to be front-end loaded as you reduce some of those corporate costs? Thanks.
Yeah, no, I think the costs were more front-end loaded. The synergies, I kind of think about them as being even, kind of even over the next three years, third a third a third. They continue going on.
All right. Thank you very much.
Our next question comes from the line of Michael Glen of Raymond James. Please proceed with your question.
Good morning. Thanks for taking the question. Can you just provide some commentary surrounding employee retention or management retention with respect to the deal?
Yeah. As we talked about, one of the important part of it was the talent. If you look at it brings a lot of experience in software and hardware and the safety-related mindset. We have a great team at Magna Electronics. One of the key things that we see is as these two organizations come together, there is a lot more opportunities that have come to the table. That's one. Also looking at the Magna overall perspective and looking at how this could add other potential, whether it's in powertrain or mirrors or lighting, a lot of electronic feature functionality that would be needed. I think there is more opportunities that could be had for the combined team. Over the next months, as we work through this process, we'll have a chance to figure out how that all fits in.
There's more opportunities than the talent, as you know, in the industry right now.
Okay. Just in the press release, in the commentary surrounding the $100 million in synergies, you said that it's additive to Veoneer's Market Adjustment Initiatives. Can you just give a quick summary of what Veoneer's Market Adjustment Initiatives look like?
I guess Veoneer's publicly talked about some of the plans that they've got for engineering in particular and how their engineering cost was ramping down and the rationale for that. What we've talked about is over and above what they've publicly guided to. Our synergies are incremental to all that. We really cannot comment more specifically and then go back and look at what Veoneer said publicly in the past.
Okay, perfect. Thanks for taking the questions.
Thank you. Our next question comes from the line of Hampus Engellau of Handelsbanken. Please proceed with your question.
Thank you very much. I'm sorry for coming back on the vision software within Magna and on Veoneer. As highlighted, Magna is highly collaborating with Mobileye, and I know when Veoneer decided to go for their own software, Mobileye immediately terminated the collaboration. This time around, Veoneer has also done a collaboration with Qualcomm to productify the Arriver software in the Snapdragon Ride, which will be a head-to-head competitor with Mobileye EyeQ5 and next generation. My question is, for what percentage have you secured that Mobileye will not terminate the collaboration? Secondly, what's your view on the Qualcomm collaboration? Is this something that you will terminate and just run the two softwares side by side within the group? Thanks.
Hi, good morning. I think like I said in my initial comments, our intent would be to continue. I cannot obviously comment on behalf of Mobileye. We are familiar with the relationship between Veoneer and Qualcomm, as well as the people at Qualcomm. We've also said Arriver will run as an independent unit, similar to how it currently is under Veoneer. Our intent is to continue to work with them. We have to understand, we cannot talk specifics until the close is done, then, we can comment more specifically about the future roadmap at that point.
Okay. Fair enough. Thank you.
Our final question of the day comes from the line of Brian Lombardi of Seaport. Please proceed with your question.
Hi, good morning. Thanks for taking my question. I guess this one's for Veoneer. What would you say about now being the right time to sell? Why is now the right time to do a deal like this?
I think you started out by saying the question was for Veoneer, and we don't have Veoneer on the line. This is Magna.
Is there no one from Veoneer on the call?
No, we don't.
There's no one from Veoneer on the call?
No, there's not.
No. This is Magna. It's Swamy .
Okay. Yeah. Okay. I guess I've heard your answer to the process question, and it's wait for the proxy?
Yes.
With respect to the process from here, what do you think will be the gating item for closing? I see you expect it to be by the end of the year. Will you need Chinese regulatory approval?
Hey, Brian. I'm not completely up to speed on everything, but pretty typical is where you're operating, you're going to need to look for some regulatory approval, which would include China, where the combined businesses will be operating in China. We're going to need some stockholder approval. We talked about having about 40% of Veoneer's existing shareholders supporting this transaction. I think it's a matter of just getting all the regulatory filings done, having the regulatory bodies review things, having Veoneer schedule a shareholders meeting to vote on this transaction. We're hopeful. We talked about near the end of 2021, was that the end of 2021? Is it rolling to the beginning of 2022? The information we're getting from legal counsel is probably by the end of 2021, we'll have this thing closed.
Understood. Thank you.
That does conclude the question and answer session for today's presentation. Panelists, I will turn the call back to you. Please continue.
Great. I just wanted to thank everyone for coming on the call at such a short notice. Hope we've given a good color, and we're really excited for the opportunities that are in front of us. Thank you. Talk to you soon.
Thank you.
Thank you. That does conclude today's presentation. We do thank you for your participation and ask that you please disconnect your lines. Have a great rest of the day, everyone, and a great weekend.