California chip maker Semtech Corp. has agreed to buy Vancouver-area communications technology vendor Sierra Wireless, Inc. for US$31 a share, the two companies said late Tuesday.
The publicly traded firms had earlier that day confirmed a Monday morning Bloomberg report that a deal was in the works and at an advanced stage. After the close of markets, the two companies announced they had reached a definitive agreement in a deal valuing Sierra at US$1.2-billion. Semtech’s market capitalization is US$3.6-billion.
Sierra stock closed down 5.2 per cent at US$28.15 on Tuesday after jumping 19.4 per cent on Monday on the Nasdaq after the news report. In Canada, where markets were closed on Monday, the stock was up 13.6 per cent on the Toronto Stock Exchange on Tuesday.
Sierra, founded in 1993 and based in Richmond, B.C., makes cellular hardware and software used to connect sensors on vehicles, computers and other devices to internet-of-things, or IoT, wireless networks. It booked US$448.6-million in revenue and lost US$49.3-million in its most recent fiscal year. But the company’s results have been steadily improving. It generated US$173-million of revenue in the first quarter, significantly higher than analysts’ expectations, which prompted several to increase their share price targets. Sierra said at the time it expected to generate between US$160-million and US$175-million in the second quarter.
But in a separate release late Tuesday, Sierra said it now expected revenue in the second quarter to exceed US$185-million and that it would have adjusted operating earnings of between US$21-million and US$23-million, up from US$15.8-million in the first quarter
Analysts expect Sierra to have its first profitable fiscal year since 2017 under the leadership of chief executive officer Phil Brace, a veteran technology executive who joined the company in July, 2021, after predecessor Kent Thexton retired. Mr. Brace, a Canadian based in California, previously held senior positions with Seagate Technology Holdings PLC and Veritas Technology LLC.
“Over the last year, Sierra Wireless has taken decisive steps to profitably grow the business, and I am proud that the progress we have made has culminated in this exciting transaction,” Mr. Brace said in a release. “Together with Semtech, we will be able to extend the reach of IoT solutions by scaling, optimizing and ultimately delivering an even stronger product portfolio and service model to customers.”
Semtech, based in Camarillo, Calif. – between Los Angeles and Santa Barbara – was founded in 1960 and generated US$740.9-million in net sales and a net profit of US$59.9-million in its most recent fiscal year. It is a leading global supplier of high-performance analog and mixed-signal chips and advanced algorithms for infrastructure, high-end consumer and industrial equipment.
A key focus of the transaction is the cloud services capabilities of the combined company, which would add US$100-million in high-margin recurring revenue to the buyer. Semtech also said it expects to generate US$40-million in cost synergies within 12 months after the deal closes.
“We believe the next era of technology growth is the full digitization of our industrial world – the internet of everything. Our vision is to build a simple, horizontal platform with the goal of accelerating this transformation and to bring about a smarter and more sustainable planet,” Semtech CEO Mohan Maheswaran said in a release. “This exciting strategic acquisition of Sierra Wireless is a critical part of bringing this vision to life.”
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Sean Silcoff