Sierra Wireless agrees deal to buy indebted Numerex for $107m, shares drop 20% then rebound
Canada-based Sierra Wireless, Inc., a provider of integrated device-to-cloud solutions for the Internet of Things (IoT), has agreed to buy Numerex Corp. for US$107 million, reports Jeremy Cowan. Described as a “definitive merger agreement”, the deal has been approved unanimously by both boards of directors. Sierra Wireless will acquire Numerex in a stock-for-stock transaction valued at approximately US$107 million.
The valuation is based on Sierra Wireless’ closing stock price on August 1, 2017 of US$29.65 per share and represents a premium of 17.5% to Numerex’s 20-day average share price. Sierra Wireless had earlier reported strong 2nd Quarter (Q2) results showing a rise in revenues of 11% year-on-year. Sierra Wireless will repay Numerex’s debt of $20 million in cash.
Markets, however reacted badly for Sierra Wireless, with Scotiabank downgrading the stock to Underperform from Perform. Shares closed 20.3% lower in Toronto on Thursday at CA$29.33, down from $37.5 on July 26. Meanwhile, Numerex stocks closed 17.9% higher on the news. (Update by Jeremy Cowan, August 5, 2017: Sierra Wireless shares have recovered some of the lost ground, closing on Friday, August 4, 2017 at CA$31.86.)
The acquisition is designed to expand Sierra Wireless’ position as a global IoT pure-play and will, says the company, significantly increase its subscription-based recurring services revenue. On completion of the transaction Numerex will become a subsidiary of Sierra Wireless and Numerex shareholders will own approximately 10% of the common shares of Sierra Wireless on a fully diluted basis.
The Transaction is expected to close in January 2018 subject to the receipt of Numerex shareholder approval and certain regulatory and government approvals, and satisfaction of other customary closing conditions.
“The acquisition of Numerex accelerates our IoT device-to-cloud strategy by adding an established customer base, significant sales capacity, proven solutions and recurring revenue scale,” said Jason Cohenour, president and CEO of Sierra Wireless. “The combination of Sierra Wireless and Numerex will represent a powerful business and technology platform that will enable the company to drive a global leadership position in IoT services and solutions.”
“We believe that combining with Sierra Wireless will strengthen Numerex’s business, advance our product offerings, and accelerate the growth of our recurring revenue streams,” said Ken Gayron, Interim CEO and CFO of Numerex. “The transaction also provides our shareholders the opportunity to participate in the considerable upside potential of the combined company.”
According to Sierra Wireless, among the benefits of the transaction are:
- The acquisition of Numerex accelerates Sierra Wireless’ IoT device-to-cloud strategy
- Scales Sierra Wireless’ subscription-based recurring revenue from IoT services
- Significantly bolsters Sierra Wireless’ position in the global IoT market;
- Expands Sierra Wireless’ sales capacity with an experienced team and channel;
- Strong fit with Sierra Wireless organisation and operating model goals; and
- Strategically diversifies Sierra Wireless’ services business and revenue mix.
Sierra Wireless expects that recurring revenue from its services business will increase from approximately 4% of annualised revenue today to more than 10% of annualised revenue upon completion of the Transaction.
It also expects this acquisition to be accretive to non-GAAP earnings per common share approximately 12 months after the close of the Transaction, assuming run-rate synergies and excluding one-time charges.