Lidar manufacturers Ouster and Velodyne agree to merge

Lidar makers Ouster and Velodyne have agreed to merge, combining roughly $400 million in market capitalization.

The companies said on Monday they will join forces to boost their competitiveness in a market segment that has seen valuations plummet as investors have become disillusioned with autonomous vehicle technology.

Lidar, short for “light detection and ranging”[ads1];, is a sensor technology that uses invisible lasers to create a highly detailed 3D map of the sensor’s surroundings. Lidar sensors are considered important components of almost all autonomous vehicle systems currently under development, and are increasingly finding applications with advanced driver assistance systems as well as other areas of robotics.

Intense investor interest in the potential of self-driving vehicles led to many lidar startups going public in recent years. But valuations are now a fraction of what they were two years ago, and prominent automakers included Ford Motor and Volkswagen have trimmed investments in autonomy in favor of more limited driver assistance systems.

Under the deal, signed Friday, Velodyne shareholders will receive 0.8204 shares of Ouster for each Velodyne share they own — a premium of about 7.8% based on Friday’s closing price of the two companies’ shares.

Ouster’s founder and CEO, Angus Pacala, will lead the combined company, which does not yet have an official name. Velodyne CEO Ted Tewksbury, who joined the lidar maker last year, will lead the post-merger company’s board.

“We all knew there is a need for consolidation in the market,” Pacala told CNBC. “This is us actually going out and doing it.”

Pacala said the combined company will be a more formidable competitor, with streamlined manufacturing, over 170 patents and what he described as “complementary customer bases, partners and distribution channels.”

The companies have identified about $75 million in savings that can be realized in the first nine months after the transaction closes, he said.

The combined company will also be relatively flush, critical in a market where it has become difficult for not-yet-profitable startups to raise money. Between them, Ouster and Velodyne had a combined $355 million in cash as of Sept. 30, Pacala said.

Velodyne was an early pioneer in automotive lidar, developing its first sensor in 2007. Its signature “puck” sensors were seen on most early autonomous vehicle prototypes. But the early devices, which cost $75,000 each and had delicate moving parts, were too expensive and fragile for use on mass-produced vehicles.

Velodyne was eventually able to reduce the cost of its puck sensors to $4,000 while making them more robust. But as newer rivals with solid-state lidar sensors—including Ouster, founded in 2015—entered the automotive industry, the early leader fell behind.

Velodyne still owns critical lidar patents and has not hesitated to enforce them. The company sued Ouster for patent infringement earlier this year, and filed a related case with the US International Trade Commission seeking to block Ouster from importing its lidar devices into the US. (Ouster’s lidar units are made in Thailand by contract manufacturer Benchmark Electronics.)

The companies will hold a joint webcast at 8:30 a.m. ET on Monday to discuss the merger. Ouster will report third quarter results after US markets close on Monday; Velodyne is scheduled to report its results after markets close on Tuesday.