Itron Continues Buyout Spree, Set To Acquire Silver Spring
Zacks Investment Research | Sep 27, 2017 09:26PM ET
In order to strengthen its presence in the Internet of Things (IoT), Itron, Inc. (NASDAQ:ITRI) recently signed a definitive agreement to buy the smart-grid products specialist Silver Spring Networks (NYSE:SSNI) for $830 million.
The Deal in Detail
Per the agreement, Itron will acquire all outstanding shares of Silver Spring for $16.25 per share. This represents a premium of 25% to Silver Spring’s closing share price on Sep 15. The transaction has been approved by the boards of directors of both companies.
Itron plans to finance this deal through cash and around $750-million incremental new debt. The transaction, expected to close in late 2017 or early 2018, is subject to customary closing conditions, including regulatory approvals as well as the approval of Silver Spring’s shareholders.
Why Silver Spring?
Headquartered in San Jose, CA, Silver Spring generated more than 20% of its revenues of $311 million in 2016, primarily through recurring managed services and SaaS solutions. To date, it has delivered more than 26.7 million network-enabled devices across five continents.
The IoT Market
The IoT concept foresees billions of connected devices and systems, with applications ranging from sensors and mobile devices to home appliances and cars. It allows objects to be sensed or controlled remotely across the existing network infrastructure, resulting in improved efficiency and accuracy.
According to the latest market research of International Data Corporation ("IDC"), worldwide spending on IoT is projected to be up 16.7% year over year in 2017. Also, the global spending is expected to total nearly $1.4 trillion by 2021.
Silver Spring’s IoT Offering to Aid Itron
The buyout of Silver Spring will help Itron continue with its multi-vendor offerings for the smart utility and smart city sectors. Further, Silver Spring will bring more capability to Itron’s offerings by delivering highly secure, value-generating solutions for critical infrastructure.
Through the deal, Itron will merge the best of both companies’ complementary technologies to provide streamlined solutions on standard-based platforms. This will enable the combined company to optimize industrial networks and deliver more solutions which enhance value for customers.
With more than 90 million smart end-points globally from the combined customer bases, Itron will be able to offer more outcome-based solutions to consumers, creating a large recurring revenue opportunity in the high-growth software and services segment. Also, the combined company’s engineering expertise, technology and deep data-domain know-how will drive greater innovation and support for customers.
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Buyout Synergies
Itron anticipates the deal to generate annualized cost synergies of $50 million within three years of closing the transaction. This acquisition will also be accretive to the company’s gross margin in the first year after the deal closes and add to its adjusted earnings per share in the second year.
Further, the buyout will pump Itron’s long-term growth and also assist it to boost its profitability beyond the mid-teens EBITDA margin target. In addition, the deal is likely to create additional revenue synergy potential for the company.
Acquisitions to Stoke Itron’s Growth
Acquisitions are part of Itron’s growth strategy to supplement the top line over the long run. The company is making efforts to enhance its existing portfolio and acquire businesses.
In June 2017, Itron closed the acquisition of Comverge. Following the Comverge acquisition, demand response in energy management solutions fit very well within Itron. Combining these solutions under the Itron brand will simplify customer sales, service and deployment, and expand the portfolio of outcome-based services. Though the Comverge buyout will not have a material impact on the company’s earnings per share in 2017, it will be fully accretive in 2018.
Our Take
Considering the growing need for industrial technology, Itron’s peers in the same Zacks Investment Research
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