Yesterday Sierra Wireless announced that it was selling its AirCard business to NETGEAR. Sierra keeps its embedded module business, as well as intelligent routers and gateways, plus its machine to machine (M2M) business.
I’m a shareholder of Sierra Wireless, and it is also a holding in my Strategy Lab growth portfolio. In fact, the reason I invested in Sierra is purely because of the M2M business. I explained this in a Globe article which you can find by clicking here.
Here’s an excerpt:
Last year, there were roughly 110 million cellular-connected M2M connections in the world. ABI Research, a New York-based follower of technology trends, thinks we’ll see more than 365 million by 2016. That’s small relative to the mobile phone market, but the growth rate is still a very healthy 27 per cent.
Sierra Wireless happens to be the No. 1 vendor for embedded wireless modules used in the M2M market. In 2011, its market share (by revenue) was over 34 per cent, according to ABI.
When I was a sell side analyst I covered this stock for over a decade. I met the current CEO (Jason Cohenour) when he headed up the company’s sales organization. He’s proven himself to be a great CEO with incredible talent for integrating acquisitions. I remember having a frank discussion with him, a few years ago, in San Diego, at the CTIA Wireless trade show. I expressed my doubts that they’d have a sustainable future in USB modems. He seemed to agree with my concerns, but encourage me to realize that the lights weren’t going out on this business tomorrow. The Chinese competitors were strong, but Sierra had excellent products and customer relationships.
He was right. The business continued doing very well. Yet they still had a very limited number of customers buying USB AirCards. And that’s why I’m so pleased to see them selling the business – and to a wonderful buyer. NETGEAR is known for making high quality consumer computing-related gear. I think the AirCard business has found the perfect home.
Sierra Wireless walks away with about $100 million in cash, after paying for expenses and tax on the deal. Is that a good number?
Yesterday (until the stock was halted), the market cap of SWIR was $274 million. The business holds $60 million in cash and has no debt. Enterprise value is therefore $214 million.
The business they just sold to NETGEAR represents $247 million in sales last year, while the assets they keep generated $397 million.
So they’ve sold 38% of total revenue and brought in 47% of their enterprise value. Considering I see the divested asset as the (previously) biggest risk to earnings in the next couple of years (potential of being crushed by Huawei and ZTE, for example), I think this is a brilliant deal.
The Sierra Wireless “heart” is now all about M2M. In fact I’d argue it has been for years. They’ve just made it official.
Well done guys.